On 25 January 2019 it happened again. Just three years and two months after Samarco’s tailings dam failed, the world’s largest iron ore producer, Vale, saw one of its tailings dams collapse in Brazil.
Administrative buildings and infrastructure were destroyed as 11.7 million m3 of mining waste from ore processing, also known as tailings, flooded the site. The death toll is expected to exceed 300, mostly Vale’s own employees. There are currently 165 people confirmed dead and a further 160 reported as missing.
CRU has closely monitored the situation and our analysis shows that the dam breach will have an immediate impact on iron ore supply, prices, quality and pellet premia. In the aftermath of the event, we expect the breach to have a major impact on the use of tailings dams in Brazil, with tighter restrictions on wet beneficiation and prolonged licensing processes as a result. In the medium and long term, we are expecting Brazilian iron ore to deteriorate in quality and production costs to increase, thus making the country less competitive in the global iron ore market. While this will result in higher margins for the other major iron ore producers in the near term, a supply response is expected to come from high-cost mines in China as well as new projects that can be brought online in the next few years. The shipping industry has been hit hard by the dam breach as iron ore transported from Brazil to Northeast Asia was becoming an increasingly important route for Capesize vessels. Freight rates from Brazil to China have fallen by 20% since mid-January.
Understanding Brazilian iron ore production
Brazil is the world’s second largest iron ore producing country behind Australia. ~70% of exports go to East Asia and ~15% of exports to Europe. Brazil’s iron ore is some of the highest quality to be found in the world. In 2018, the average Fe content of Brazilian iron ore exports was 64.5%. In comparison, the same figure for Australia was 59.5%.
A significant proportion of Brazil’s iron ore does not require much processing, especially in the Para state, home to Vale’s Northern System. However, most of the country’s iron ore is produced in the Minas Gerais, a state dominated by a type of ore called Itabirite that has an Fe content between 30–58%. Therefore, wet beneficiation processes are often used to get rid of waste rock and to raise the iron content to levels above 60%. Wet beneficiation, however, generates large volumes of tailings that typically have been stored in tailings dams.
Vale accounts for close to 90% of the country’s iron ore production. Around half of the production takes place in the Northern system where less wet beneficiation takes place and the company is currently ramping up production there at the new S11D mine. Vale is also the world’s largest pellet producer and most of the pellet feed production and pellet plants are located in or around Minas Gerais.