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Miner Ferrexpo sees 5 mil-10 mil mt shortfall in global iron ore pellets in 2019

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Miner Ferrexpo sees 5 mil-10 mil mt shortfall in global iron ore pellets in 2019

London — Ukraine-focused iron ore miner Ferrexpo said Tuesday it expects the global seaborne iron ore pellet market to develop a shortfall of 5 million-10 million mt in 2019, due to production disruptions in Brazil, supporting price premiums.

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On top of the expected constraints to pellet supply, an increasing global focus on reducing air emissions is likely to provide support for pellet premiums in the face of likely weaker steel mill margins in 2019, Ferrexpo said.

Higher pellet output in Sweden, Canada and Bahrain this year may help to partly offset idlings at pellet plants in Brazil after the collapse of a tailings dam at a Vale mine in January led to widespread checks, said Ferrexpo in its annual report.

India and Iran may also expand pellet supply, with 2018 global export pellet trade estimated at 132 million mt and Vale, LKAB and Ferrexpo as the biggest exporters, the company said.

"Supply of pellets in 2019 and 2020 is expected to be impacted by closures of mines and pellet plants in Brazil due to heightened concerns about the safety of upstream tailings dams," Ferrexpo said.

In Brazil, the company expected potential delays in Samarco's pellets operations coming back online, and possible constraints in iron ore pellet feed supply, further tightening the market.

Realized pellet prices have continued at high levels so far in 2019 after a 30% rise in premiums last year, Ferrexpo said.

Ferrexpo said it agreed with customers for 2019 to base pellet pricing off the 65% Fe iron ore fines price, rather than the 62% Fe iron ore fines price used in 2018 and prior.

This will enable Ferrexpo to directly capture the price premium for higher grade iron ore, it said.

The company typically agrees three-year sales contracts with customers with varying tenors up to 14 years.

Ferrexpo reiterated in 2019 it will continue its repair and maintenance program, including a 75-day pellet line shutdown in the second half of 2019.

The company continues to expect 2019 production volumes to be in line with 2018 at around 10.6 million mt and output to grow to 12 million mt/year by 2021 after investments, including into the Concentrator Expansion Programme 1.

Ferrexpo said it will commence construction on a new press filtration plant and other pellet capacity upgrade projects as well as purchase additional rail cars, subject to available cash flows and market conditions.

-- Hector Forster, hector.forster@spglobal.com

-- Edited by James Leech, newsdesk@spglobal.com