The iron ore pellet market has seen sentiment move toward a scenario of tight supply persisting for some time to come as BHP Billiton announced that the Samarco operation in Brazil would not likely restart this year.
BHP also confirmed it would produce less in the future, with industry expectations that resumed output may only be just over half prior levels, which were close to 30 million mt/year in the period before 2015.
"Samarco has confirmed it is unlikely to have in place the necessary approvals to restart its operations in this calendar year," an update from BHP said.
"Samarco's operations will restart only when it is safe to do so, and when all regulatory approvals are granted and accepted by the relevant authorities and communities," the company said in a notice dated Thursday.
Samarco is likely to see its workforce reduce with 40% expected to take voluntary redundancy, to correspond with future expected production levels, BHP added.
A breach of the Fundao tailings dam and Santaram water dam at the mining operations in Brazil's Minas Gerais in November led to fatalities and environmental damage as tailings covered nearby towns and ended up in the Rio Doce river.
The company has other tailing dams, tested after the accident with a study around the cause of the dam collapse yet to conclude.
"The Germano and Santaram dams are reportedly stable following engineering restoration activities and real-time radar, laser, camera and water level monitoring of the dams will continue," BHP said.
There are some reports of recent upward revisions to premiums under offer for blast furnace pellets supplied under contract from miners, while DR pellet demand remains more at the mercy of the removal of 30 million mt/year capacity of high-grade pellet capacity from the BHP joint venture with Vale.
Platts for July assessed Atlantic BF estimated provisional contract premiums at $30.50/dmt, and DR premiums at $41.50/dmt. Some latest BF pellet offers, were given in early July as moving up to the mid $30s/dmt level, according to a mill buyer involved in sourcing a range of pellet origins among other grades.
Another buyer said contracts for pellets left for delivery also later this year were being performed at premiums as low as the mid $20s/dmt, negotiated around November/December, while there were expectations of facing higher premium offers at renewal. Some quarterly and shorter than annual deals may carry higher premiums.
CONTRACT CHANGES
Changes in other contract terms discussed may be lending higher overall pricing for pellets as well as fines, rather than indicated when comparing premiums alone with prior levels.
The BHP update comes as several DRI plants are heard to be trialing BF pellets and others with specifications including higher impurities such as silica and alumina, than usual DR grades as part of the blend. This compares to previous reliance on previous compositions of exclusively low silica, high FE DR pellets.
These trials and burden changes have advanced with much of the work in this area likely expanding in the second half of 2016, as the longer-term absence of Samarco from the market became clear.
Samarco has a Real 20 billion ($6.2 billion) government fine hanging over it, as plans under an earlier agreement for compensation and work agreed between the company, the main shareholders, and government through the Federal Court of Appeal in Brasilia were set back. The overall value of the earlier compensation and environmental recovery work accord announced in May was lower, albeit under a complicated framework.
The Superior Court of Justice in Brazil issued an interim order on June 30 suspending the decision of the Federal Court of Appeal to ratify the Framework Agreement on May 5.
"The effect of the interim order of the Superior Court of Justice is to reinstate the Real 20 billion public civil claim made by the Brazilian Authorities against Samarco, Vale and BHP Billiton Brasil," BHP said. "BHP Billiton Brasil intends to appeal the decision of the Superior Court of Justice."
Samarco has a series of pellet plants in Ponta Ubu, and shipped materials to the Middle East, Europe and Asia. The company was said to have had a "blue chip" top industry reputational standing, and post-accident the Brazilian iron ore industry found setbacks with more scrutiny and slower permitting.
There were direct effects to Vale's own operations close to Mariana, leading to a greater loss in output, particularly affecting supplies into the Atlantic market.
