The war in Eastern Europe should have impacts on the global iron ore market, with impacts on commodity prices, Vale’s board said on Friday (25), in a conference with analysts to detail the record profit for 2021.
Russia and Ukraine are relevant producers of ore pellets, which are agglomerates of ore used in the production of steel. Together, the two countries concentrate around 30% of the supply of this product to the steel sector.
“The big question is how long this tension will take”, said the vice president of Ferrous at Vale, Marcello Spinelli. “The primary impact is much more focused on eastern European plants, because western countries have an alternative.”
He said the war takes place in a tight market scenario, which could put further pressure on prices. “At first, the impact will be on production and pellet prices should react,” he continued.
Russia produces around 10 million tonnes a year and Ukraine around 15 million, most of which is for the steel industry. The global market is 120 million tons, of which 80 million are used in steel blast furnaces.
Spinelli said that Vale has been receiving calls from European customers in search of supply alternatives, but did not give further details about negotiations.
At the meeting with analysts, the president of Vale, Eduardo Bartolomeo said that, although there are still no restrictions on the market, the beginning of the conflict generated a “speculative impact” on the price of nickel, which had already been rising before the crisis.
Russia is the largest global producer of this mineral. “The price [do níquel] was reacting before the political tension over supply and demand issues,” he said. “It is obvious that there was acceleration after the conflict. It has a still speculative impact, there is no sanction.”
Vale’s vice president of Ferrous Products also highlighted that fuels, which have also been impacted by the war, are an important cost component in mining.
This Thursday (25), the price of Brent oil, an international benchmark for prices negotiated in London, hit the mark of US$ 105 (R$ 540, at the current price) per barrel for the first time since 2014. At the end of the trading session, the price retreated to US$ 99.08 (R$ 510).
According to an executive, every US$ 10 (R$ 51) in the quotation represents US$ 0.21 (R$ 1) in production costs and US$ 0.09 (R$ 0.4) in the freight of a ton of iron ore.
On Thursday (24), Vale announced the highest annual profit ever recorded by a publicly-held company in Brazil, of R$121.2 billion, surpassing the R$106.6 billion announced by Petrobras this Wednesday (23), which held the record until then, according to Economática.
The performance was boosted by record ore prices, which reached more than US$ 200 per ton at the end of the first half of the year. On average, the company sold iron ore at an average price of US$ 104.5 per ton (R$ 538), 30.8% higher than in 2020.
With the result, Vale proposed the payment of US$ 3.5 billion (R$ 18 billion) in dividends to its shareholders. The company had already distributed US$ 7.4 billion (R$ 37 billion) in 2021 as compensation for the performance of the first half.
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