SÃO PAULO Vale SA
will maintain the scheduled start-up of its Tubarão VIII
pellet plant in Brazil for the first half of next year despite
an announcement Thursday that it would slash pellet
"Plant VIII is forecast for
2013, with the commissioning of works and beginning of
operations (set) for the middle of next year," the
companys press office told AMM sister
publication Steel First in an e-mail.
The Brazilian miner will
temporarily halt production at three of its pellet plants in
Brazil, including Tubarão I and II, due to lower global
pellet demand (
amm.com, Oct. 4).
With a pelletizing capacity of
7.5 million tonnes per year, Tubarão VIII was expected
to come on-stream in the second half of this year at a cost of
$968 million. However, Vale said in July that the start-up date
had been pushed back to the first half of 2013, with total
costs reaching $1.08 billion.
Vales decision to cut
pellet production was seen as "negative for sentiment" but
positive as it "makes economic sense," according to a report
from Barclays Capital Plc.
The decision is a "mix issue,"
because Vale is not cutting production targets, analyst
Leonardo Corrêa said in the report.
"We spoke with the company and
its target volumes remain unchanged, as the company will
compensate (for) lower pellet production with higher sinter
feed shipments," Corrêa said.
Also, Vale told the investment
bank that the decision to shut down Tubarão I and II
hung on its higher costs compared with other plants, as they
are older facilities with higher cash costs.
Barclays estimates that
Vales pelletizing plants have a transformation cost of
about $30 to $40 per tonne, which is very close to current
pellet premiums of some $30 per tonne.
"Thus, we believe Vales
decisions to halt some pelletizing capacity makes economic
sense, especially considering that fines usually generate
higher margins vs. pellets," Corrêa added.