Vale freight, fuel hedges cushion impact of rising shipping costs

Brazilian miner Vale SA's freight and fuel hedging strategies have protected the company from the worst impacts of higher shipping costs facing iron ore producers, CEO Gustavo Pimenta said Oct. 30.

About 75% of Vale's shipping needs are covered by long-term contracts at fixed prices over the next few years, while the remaining needs will be managed through shorter-term contracts.

"This structure provides flexibility while limiting direct exposure to the spot market," Pimenta said on the company's third-quarter earnings call.

The war in the Middle East has ratcheted up global fuel prices, contributing to higher maritime freight costs for Brazilian iron ore producers. Several producers have halted or reduced production because of the high rates.

Vale's realized freight costs increased by $4.70/metric ton since the first quarter, much less than the spot cost from Brazil to China, according to Pimenta.

Over the same period, spot freight rates for the Brazil-China route increased by $12/mt, compared with $4.90/mt for the route from Australia to China, Pimenta said.

The company's all-in cost for the third quarter was $60.40/mt, up 21% year on year due to a stronger Brazilian real and higher diesel and bunker fuel prices. Vale's all-in cost including the cash benefit from its oil hedging program was $59/mt, according to Marcelo Bacci, executive vice president for finance and investor relations.

Vale has hedged 67% of its expected 2027 bunker consumption, at an average hedge price equivalent to $78/barrel Brent. The company's freight strategy is expected to generate a benefit of more than $3 billion versus spot freight in 2026.

"Our freight and hedging strategies provide meaningful protection in a more volatile market environment, helping preserve competitiveness and free cash flow generation," Pimenta said.

The company estimates its 2027 freight guidance exposure at $24-$25/mt based on current market prices. However, Vale is not yet locking in guidance levels because it expects better marker opportunities.

C1 cash costs in the third quarter were $23.1/mt, 12% higher than the same time last year, largely due to higher diesel costs and appreciation of the Brazilian real.

The iron ore dry-bulk freight for Tubarão, Brazil, to Qingdao, North China, on a 170,000 Capesize basis assessed by Platts, part of S&P Global, peaked at $43.35/wet metric ton on Sept. 22, nearly double the $21.75/wmt on Jan. 2.

The price was assessed at $36.80/wmt on Oct. 30, remaining above levels seen before the US-Iran war.

Lower iron ore, copper output

Vale's iron ore production fell 6% to 88.4 million mt in the third quarter of 2026, from 94.4 million mt in the third quarter of 2025. The lower production levels are largely due to lower output at the Serra Norte mine and operational stoppages at the Fabrica and Viga mines, the company said in its quarterly report.

The Platts-assessed iron ore index decreased by 15.8% to $90.70/dry metric ton CFR China on Oct. 30, from $107.70/dmt a year ago.

Vale's iron ore pellet production rose 7% to 8.6 million mt, driven by higher pellet feed availability from Brucutu and Itabira mines and increased output at the Vargem Grande pellet plant.

Copper production for the period decreased 6% to 85,500 mt, attributed to a planned rebuild of a semi-autogenous grinding mill at the Sossego operation in Brazil and preventive mill maintenance at the Voisey's Bay site in Canada.

Vale produced 49,700 mt of nickel, up 6% from 46,800 mt in the third quarter of 2025, in part due to a strong performance of a second furnace at the Onca Puma mine in Brazil and record production at the Sudbury refinery in Canada.

The miner also reported an adjusted EBITDA of $3.3 billion, down 23.8% from $4.4 billion in the year-ago quarter.