Vale (NYSE: VALE) chief executive officer Gustavo Pimenta said on Friday that surging energy and freight costs linked to the Middle East conflict have made about 10% of global iron ore supply unprofitable, raising the prospect of a price recovery as high-cost producers cut output.
The Brazilian mining giant estimates that roughly 160 million tonnes of annual supply is operating at a loss, with about 15 million tonnes already taken offline because of rising costs.
“Prices should be today a little higher,” Pimenta said in a Bloomberg TV interview. “Not because of supply and demand, but because of the impact of freight rates; fuel prices have been higher.”
Brazil targets bigger role in critical minerals rush
Iron ore futures in Singapore fell below $90 a tonne this week for the first time in two years, extending their decline to about 15% this year. Weak Chinese demand and abundant global supply, including new production from Guinea’s Simandou mine, have weighed on prices.
The combination of falling prices and higher operating expenses is squeezing miners’ margins, particularly among marginal producers. Pimenta expects production cuts to help rebalance the market and support a recovery, although the timing remains uncertain.
Election outlook
Pimenta also expressed confidence in Chinese demand and Brazil’s mining policies ahead of the country’s Oct. 25 presidential runoff, saying both candidates recognize the benefits of strengthening the sector through faster permitting and other measures.
Right-wing Senator Flavio Bolsonaro faces leftist President Luiz Inacio Lula da Silva in a closely contested election that could influence the regulatory environment for Brazil’s mining industry.
A Quaest poll released this week put Bolsonaro at 46% support against Lula’s 44%, a difference within the survey’s two-percentage-point margin of error.
Bolsonaro is the son of former President Jair Bolsonaro, who is serving a 27-year prison sentence for plotting a coup after losing the 2022 election.
Op-Ed: Brazil’s critical minerals push comes with a catch
Vale was privatized in 1997, but investors remain sensitive to government influence through its golden share, as well as policies governing mining permits and key railway concessions.
Pimenta has advocated reforms to attract mining investment, including accelerated environmental approvals and expanded geological mapping.
A proposed review of Brazilian regulations protecting natural caves could unlock major developments, including a planned Vale iron ore mine with annual production capacity of 50 million tonnes.
The outcome of those regulatory changes could shape Vale’s ability to expand production and develop new deposits.