Vale is negotiating a change in its 2019 iron ore pellet contracts from the current 62% Fe delivered basis to the 65% Fe delivered price, the company said Tuesday.
The change will lead to an "important price increase," said Vale's executive director of ferrous metals and coal, Peter Poppinga, during the Vale Day investor presentation in New York. He added that negotiations are close to a conclusion.
"If both [ore pellet and 65% Fe delivered] indexes are linked to productivity, then it is a natural hedge [for the buyers]," he said.
Although he would not provide a hint of how much pellet prices might increase, Poppinga emphasized that there will be a price hike, not a premium. "Pellet prices will be higher [in 2019]," Poppinga told S&P Global Platts after a press briefing at the New York Stock Exchange. "I did not say premiums -- because we are moving from 62 to 65 price indexing."
The heated demand for iron ore pellets -- as steel mills in China and elsewhere seek to use higher quality iron ore products in a bid to reduce coal use and carbon emissions -- drove Vale to resume operations at its Sao Luis, Tubarao I and Tubarao II iron ore pelletizing plant in this year.
Vale estimates that global pellet demand will grow by 14% to 514 million mt this year from 452 million mt in 2017, and by another 18% to 602 million mt/year by 2025.
Vale's pellet production capacity is set to reach close to 60 million mt/year from some 50 million mt, including its Oman plant.
Moreover, Poppinga foresees the premium on Vale Carajas iron ore in 2019 to be an average between the 2017 premium of $17/mt and and 2018's $21/mt.
On Brazilian Blend Fines (BRBF), he expects premium to remain at $4-$5/mt next year.
The overall market will remain strong in 2019, with benchmark 62% Fe fines prices seen "in a narrow band of $60-$80/dry mt," said CEO Fabio Schvartsman.
