Luiz Meriz, Vale: Steel and Iron Ore Market Perspectives

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Luiz Meriz Director, Iron Ore Marketing Department Americas Iron Ore Conference Nov 11-13, 2013 Rio de Janeiro Steel and Iron Ore Market Perspectives

Transcript of Luiz Meriz, Vale: Steel and Iron Ore Market Perspectives

Luiz Meriz – Director, Iron Ore Marketing Department

Americas Iron Ore Conference

Nov 11-13, 2013 – Rio de Janeiro

Steel and Iron Ore Market Perspectives

Agenda

Short Term Outlook

Long Term Market Prospects

Vale S11D

Other Iron Ore Projects

Conclusion

Short term outlook

Manufacturing activity has been improving in thesecond half of this year

Sources: J.P. Morgan and Bloomberg

PMI evolution in some of the main regions of the globe

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Jan

-12

Feb

-12

Mar

-12

Ap

r-1

2

May

-12

Jun

-12

Jul-

12

Au

g-1

2

Sep

-12

Oct

-12

No

v-1

2

Dec

-12

Jan

-13

Feb

-13

Mar

-13

Ap

r-1

3

May

-13

Jun

-13

Jul-

13

Au

g-1

3

Sep

-13

Oct

-13

China US Japan Eurozone Global

PMI above 50 indicating expansion of manufacturing activity in all regions

Chinese economy remains soundChina’s GDP growth rebounded in 3Q13 increasing by 7.8% YoY and by 9.0% QoQ saar. Amore favorable global economic environment, as well as a much clear government’ssupport to domestic investments were behind the better overall performance;The central government continues to encourage growth both directly, supportinginvestments in infrastructure and public housing building, and indirectly by creating amore favorable environment for business.

GDP Total social financing

Advanced economies are gradually strengthening

US Unemployment Ifo survey and Europe Sentiment Index

Political instability did not prevent improvementin the economic activity. US GDP is expected torise from 1.5% this year to 2.5% in 2014, driven bya continued strength in the privatedemand, which in turn is supported by arecovering in the housing market, a risinghousehold wealth, along with a reduction inunemployment rate.

Recovery continues to gain steam gradually andachieve peripheral economies. Spain’s GDP grew inthe 3Q13 after nine consecutive quarters ofcontraction. The Economic sentiment index gained1.6 points in September to reach 96.9, its fifthconsecutive increase, which left the index at itshighest level since August 2011.

Long term market prospects

~160 million

~660 million

Est. 934 million2010

2030

Source: UN Population Fund

1975-2010 = +500 million(as if double the population of Indonesia had been urbanized)

2011-2030 = +275 million (Urban population grows at a CAGR of an estimated 1.6% a year till 2030). Slightly lower than the population of the USA.

China’s economic profile shift from infrastructure to consumption still far from reality

1975

17% (urban % of total pop.)

50% (urban % of total pop.)

67% (urban % of total pop.)

Despite the expected transition of the economic profile of the country in coming years, urbanization and infrastructure should continue to be the main

drivers for steel consumption growth for at least another decade.

Chinese urbanization will continue to produceimportant effects on the demand for steel

0 50.000 100.000 150.000 200.000 250.000

USA

China

Rail network (millions of km)

0 1.000 2.000 3.000 4.000 5.000 6.000

USA

China

Airports with paved runways

Inhabitants per vehicle - 2011(units)

Strong growth potential

For China to reach the same car

penetration that Brazil has today, it

will need to produce additional 118 million unitsm

illion

Urban households

Housing stock, units

Forecast

Housing

shortage

Source: Gavekal Dragonomics, Mc Kinsey, Vale estimates

0

200

400

600

800

1,000

1,200

1,400

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Cru

de

ste

el c

on

su

mp

tio

n p

er

ca

pit

a (

Kg

)

GDP per capita (US$, 2005, Real)

Historical relation between GDP per capita (PPP) and CSP per capita (1900 to 2011)

Japan (1980 to 2011)

South Korea (1970 to 2011)

Germany (1970 to 2011)

USA (1947 to 2011)

China (1978 to 2011)

India (1950 to 2011)

Brazil (1947 to 2011)

There is still a long way for China to converge to the income level of advanced nations. Which cloud type China will follow?

Source: WSA, IMF

China and other emerging regions have strong potential for steel consumption growth

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0 100 200 300 400 500 600 700

Exp

ecte

d G

DP

gro

wth

next

5 y

ears

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Steel consumption/capita (kg) 2012

India

CIS

SE Asia (2011 data)

China

South America

Reference

250 million people

Strong growth potential regions

Expected GDP growth and current steel intensity x population size

Source: IMF, WSA

Countries/regions with a large population hold a strong potential for steel consumption growth, but urbanization and industrialization must continue

Vale’s S11D

Carajás iron ore complex

S11D: the largest project in the iron ore industry

Nominal capacity: 90 Mtpy.

Start-up: 2H16.

Total Capex: US$ 19.67 billion (including logistics)

Stripping ratio: 0.27.

Mass recovery: 100%.

Truckless mining, dry processing, no tailings dam and 70% reduction on greenhouse gases emissions.

Water saving and forest preservation

Processing plants

Equipment’s Stockyards

Earthworks

46%completion

Northern logistics capacity expansion (CLN) projects allow for transportation of current expansions and S11D volume

CLN 230 project key data

Target: 230 Mtpy (rail and port -current 150Mtpy).

Expansion of PDM terminal

Project status

Earthworks initiated for 570 km of railway duplication.

Realized capex until 3Q13: US$ 880 million.

10%completion

S11D is the result of our constant pursuit of operational excellence

Spartan project - simplicity and functionality, with a high level of

operational safety and low exposure to risk of accidents;

Sturdiness and reliability - robust plants with high level of automation;

Dry process - low water consumption and disposal of tailings dam;

High productivity

Low operating cost

Low socioeconomic impact - use of local labor and implementation of

actions in partnership with local government to promote strategies to

reduce workforce migration.

Video - S11D Project

Other Iron Ore Projects

Projects approved by the Board of Directors

Volume Estimated Start up

Product Expected total capex US$ bi

Iron Ore Carajás Additional 40 Mtpy 40 Mpty 2H13 Sinter feed $ 3.47 bi

Iron Ore Carajás S11D(mine + processing plant)

90 Mtpy 2H16 Sinter feed $ 8.09 bi

Iron Ore Logistics

CLN S11D Mtpy(Northern System railway and port capacity)

EFC capacity to 230 Mtpy

1H15 to 2H18

- $ 11.58 bi

Iron Ore Carajás Serra Leste(new processing plant)

6 Mtpy 1H14 Sinter feed $ 478 mln

Iron Ore Conceição Itabiritos 12 Mtpy 2H13 Pellet feed $ 1.17 bi

Iron Ore Vargem Grande Itabiritos 10 Mtpy 2H14 Pellet feed $ 1.91 bi

Iron Ore Conceição Itabiritos II 19 Mtpy 2H14 PF / SF $ 1.19 bi

Iron Ore Cauê Itabiritos 24 Mpty 2H15 PF / SF $ 1.50 bi

Iron Ore Logistics

Teluk Rubiah(Distribution Center, Malaysia)

30 Mtpy 2H14 - $ 1.37 bi

Iron Ore Tubarão VIII Pelletizing Plant 7.5 Mtpy 1H14 Pellets $1.32 bi

Projects : Update as from 6th November, 2013

Fully approved and committed: Vale’s iron ore mining and logistics expansion projects will require US$ 32 billion until 2018

We have already delivered projects to increase capacity and more are underway

Carajás Additional 40Mtpy Expansion of iron ore processing capacity

Commissioning: first ore picture

Dry processing

CAPEX: US$3.5 bi

97%completion

Additional capacity & qualityFully operational by 2015

Production capacity: 12 Mty.

Production split: 100% high grade pellet feed.

Estimated CAPEX: USD 1.17 billion.

Start-up: 2H13.

Description: New beneficiation plant to process compact itabirites. The process flow includes 6ball mills and flotation facility.

Conceição Itabiritos

Expected quality: Fe: ~67.70%

SiO2+Al2O3: ~1.10%

P: ~ 0.025%

99%completion

Quality & Extending mines life

Pelletizing Plant Tubarão VIII

Eighth pelletizing plant in Tubarão Complex

Nominal capacity: 7.5 Mtpy.

Start-up: 1H14.

Total Capex: US$ 1,321 million

Realized capex until 3Q13: US$ 1,035million

92%completion

Production capacity: 10 Mty.

Production split: 100% pellet feed.

Estimated CAPEX: USD 1.91 billion.

Start-up: 2H14.

Description: New beneficiation plant to process itabirites, stockyard expansion and longdistance conveyor belt.

Expected quality: Fe: ~67.80%

SiO2+Al2O3: ~1.71%

P: ~ 0.035%

Vargem Grande Itabiritos72%

completion

Quality & Extending mines life

Production capacity: 19 Mty.

Production split: 32% sinter feed and 68% pellet

feed.

Estimated CAPEX: USD 1.19 billion.

Start-up: 2H14.

Description: Refurbishment of existing Conceição plant (new process flow) to processcompact itabirites.

Conceição Itabiritos II

Expected quality: Fe: ~68.10%

SiO2+Al2O3: ~2.66%

P: ~ 0.023%

Primary crushing construction

73%completion

Quality & Extending mines life

Production capacity: 24 Mty.

Production split: 29% sinter feed and 71% pellet

feed.

Estimated CAPEX: USD 1.5 billion.

Start-up: 2H15.

Description: Refurbishment of existing Cauê plant (new process flow) to process compactitabirites.

Expected quality: Fe: ~67.64%

SiO2+Al2O3: ~2.30%

P: ~ 0.017%

Cauê Itabiritos36%

completion

Quality & Extending mines life

306

450

2013 2018

Vale’s iron ore production capacity will increase sharply

Iron ore production capacity¹

(Mt)

¹ S11D expected to reach 90Mt in 2018.

Additional 150 Mt of high quality ore

2018e average quality parameters:

Fe: > 66%

SiO2 : < 2%

Al2O3: < 2%

P: < 0.04%

Conclusion

Main messages

Chinese steel demand has been surprising on the upside. Despite the

efforts to change the economic profile, urbanization and infrastructure

should remain the drivers for steel consumption for at least another

decade, although at a lower pace;

Global steel consumption growth should be supported by economic

recovery of advanced nations and development of emerging

economies, mainly in Asia.

Vale believes in the long term fundamentals and is investing in iron ore

mining and logistics expansion projects which will require US$ 34 billion

until 2018, including Carajás S11D - the largest project ever developed in

the iron ore’s industry;

Vale is eager to support its customers by supplying increasing volumes of

the highest quality iron ore in the market.

THANK YOU!