Brazil's Vale to idle pellet plants on low steel demand

London (Platts)--4 Oct 2012 1145 am EDT/1545 GMT

Brazil's Vale said Thursday it will temporarily idle the Sao Luis and Tubarao I and II iron ore pellet plants, starting October 8 at Sao Luis and November 13 at Tubarao, on lower demand from steelmakers.

Vale will boost supply of sinter feed instead as it reduces iron ore supplied to pellet plants, the Rio de Janeiro-based group said in a statement. Sao Luis and Tubarao I and II produced 4.926 million mt of pellets during the first half of 2012, accounting for 18.3% of Vale's total, it said.

Employees at the plants will be reassigned to other Vale operations, it said.

In the two months between July and September, 62% Fe benchmark iron ore spot prices into China fell over a third, dropping $48.75/dmt to $89/dmt from $137.75/dmt. Spot prices have since rebounded but only to $107/dmt.

As iron ore spot prices started falling pellet premiums against fines have also fallen, and in turn demand has also dropped. Current spot premiums for pellets compared to fines are close to $15/dmt, while longer-term contracts into Europe from Brazil were agreed at over $30/dmt earlier this year.

Premium products like pellets have suffered the most as raw material prices started to fall. Mills started cutting back production rates and demand for high Fe grades and pellets diminished against better demand for lower Fe grades. Mills use lower Fe grades when they do not prioritize running their steel units at maximum rates.

Vale said it "continues to invest in the execution of its iron ore and pellets growth pipeline, remaining confident in the long-term iron ore market fundamentals and, above all, in the high competitiveness of its world-class assets."

Vale is pressing ahead with its 7.5 million mt/year Tubarao VIII pellet unit, the eighth unit at the site in Espirito Santo, which is expected to cost $1.088 billion and start in the first half of 2013, the company said in a July 25 earnings report.

Vale owns the Tubarao I and II units outright, and operates the other five pellet units at the port site in Vitoria state through partnerships with overseas steelmakers. Tubarao currently has a capacity of 25 million mt/year through the seven units, company data on its website show.

The Sao Luis unit at the Ponta da Madeira terminal has a 4 million mt/year pellet capacity. Vale also owns the Fabrica pellet plant in Minas Gerais state with a 4 million mt/year capacity. In September 2009, Vale also inaugurated the Itabiritos pellet project in Minas Gerais.

Vale is a 50:50 partner with BHP Billiton in the Samarco pellet joint venture in Brazil with 22.25 million mt/year of capacity.

Vale produces direct reduction pellets in Oman at Sohar and the company has a pelletization joint venture in China.

--Hector Forster,

--Annalisa Jeffries,

--Edited by Jonathan Fox,

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