New York — Brazilian mining group Vale plans to decommission all of its upstream tailings dams and has presented its decision to do so to the Brazilian authorities after the fatal collapse of the Corrego de Feijao iron ore mine No. 1 tailings dam in Minas Gerais last Friday. Far-reaching market impact is expected and prices are already reacting.
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Vale's decision will result in a temporary reduction of around 40 million mt a year in iron ore production, including high-value feed for the production of 11 million mt/year of pellets.
**The late Tuesday announcement from the world's largest iron ore miner rattled markets. S&P Global Platts assessed the 62% Fe Iron Ore Index Wednesday at $85.05/dry mt CFR North China, up $5.10/dmt from Tuesday. The front-month February TSI swap was up $4.40 day on day at $83.90/dmt.
**At Wednesday's close, the benchmark IODEX 62% spot price was up nearly 12.8% since the dam accident last Friday.
**"It's unclear what the impact on steelmakers will be, but logistics is the problem," a source close to a major steelmaker said. "Iron ore could reach $100/mt."
**The source said some mills may attempt to reduce their dependence on Vale ore, which could favor its major competitors -- BHP, Rio Tinto, Anglo American and Fortescue Metals Group -- as well as North America's Cleveland-Cliffs.
**The disaster is likely to have repercussions for global iron ore pellet negotiations, with tightened safety measures set to reduce pellet and concentrate feed volumes over several years, at a time of record premiums.
**Vale will idle the Fabrica and Vargem Grande pelletizing plants, which also supply Brazilian steel mills, and pellet feed needed for the production of 11 million mt of pellets will be cut, Vale said.
**Annual 2019 contract settlement negotiations for blast furnace grade pellets were heard not yet concluded so far this month. Some buyers agree on calendar-year terms and others based on fiscal year effective April 1.
**Several buyers involved were said to be pushing back on premiums tabled for 2019, already at a record high at a Platts-assessed $58/dmt, after steel prices fell and the outlook in Europe soured.
**Capesize freight rates across all of the Asia-Pacific and Atlantic Capesize routes plunged Wednesday amid Vale's decision to decommission all of its upstream tailing dams.
**Platts assessed the freight rate for a Capesize vessel to move iron ore from Tubarao to Qingdao at $14/wet mt, down 80 cents from Tuesday.
**Supply-side market impact will be far greater than the lost 8 million mt/year production at Vale's Feijao iron ore mine in Brumadinho, Brazil, according to Lourenco Goncalves, CEO of US-based iron ore miner Cleveland-Cliffs.
**"Scrutiny of tailings dams in Brazil is at an all-time high," Goncalves told S&P Global Platts. "This will involve everything in Brazil -- not just for Vale but other iron ore miners there."
**Could it happen outside of South America? After the Samarco accident in Brazil (see below), Cleveland-Cliffs (four mines in the US) retested all its procedures and safety initiatives. "We are extremely comfortable. One thing we don't mess with is tailings management, and we believe we are best in class," Goncalves said.
**The dam collapse came a little more than three years after a similar accident at Samarco, a mining and pelletizing joint venture Vale and BHP owned, which caused one of Brazil's worst environmental disasters, with a mud slide claiming 19 lives and causing production disruptions that are still reverberating.
**The latest Vale disaster has resulted in at least 99 fatalities with 260 people still missing as of Wednesday evening.
**Dam 1 of the Corrego do Feijao Mine in Brumadinho was 86 meters high and had a crest length of 720 meters. The waste disposal area was 249,500 square meters and the volume disposed was 11.7 million cubic meters.
**The dam was inactive -- no tailings were being added -- and the decommissioning of the dam was being planned.
**Tailings are the byproducts of ore production and a tailings dam is usually an earth-filled embankment dam used to store these byproducts. Vale said there was no pond and no other type of operational activity taking place.
**Vale said the dam was built in 1976 by Ferteco Mineracao, using the upstream method.
**Vale acquired the dam on April 27, 2001.
**The Corrego do Feijao Mine is part of Vale's Southern System, located in the "Iron Quadrangle" of Minas Gerais State. This region produced around 118 million mt of Vale's 366.5 million mt total output in 2017. The Corrego do Feijao mine itself has a capacity of 7.8 million mt/year of high grade ore and production was halted following the accident.
**On November 5, 2015, production of iron ore and pellets was halted at Samarco, a joint venture pelletizer owned by Vale and BHP, after its dam burst.
**Samarco, with a pelletizing capacity of about 30 million mt/year, has yet to receive the final go-ahead to resume production.
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