Luiz Meriz, Vale: Steel and Iron Ore Market Perspectives
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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
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
4042444648505254565860
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
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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.
~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
0 10,000 20,000 30,000 40,000 50,000
Cru
de
ste
el c
on
su
mp
tio
n p
er
ca
pit
a (
Kg
)
GDP per capita (US$, 2005, Real)
Historical relation between GDP per capita (PPP) and CSP per capita (1900 to 2011)
Japan (1980 to 2011)
South Korea (1970 to 2011)
Germany (1970 to 2011)
USA (1947 to 2011)
China (1978 to 2011)
India (1950 to 2011)
Brazil (1947 to 2011)
There is still a long way for China to converge to the income level of advanced nations. Which cloud type China will follow?
Source: WSA, IMF
China and other emerging regions have strong potential for steel consumption growth
0
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12
0 100 200 300 400 500 600 700
Exp
ecte
d G
DP
gro
wth
next
5 y
ears
(%
)
Steel consumption/capita (kg) 2012
India
CIS
SE Asia (2011 data)
China
South America
Reference
250 million people
Strong growth potential regions
Expected GDP growth and current steel intensity x population size
Source: IMF, WSA
Countries/regions with a large population hold a strong potential for steel consumption growth, but urbanization and industrialization must continue
S11D: the largest project in the iron ore industry
Nominal capacity: 90 Mtpy.
Start-up: 2H16.
Total Capex: US$ 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.
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%
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.