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 production.
"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.