Will the Vale Malaysia fire cause more iron ore supply disruption?

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On Friday 15th February 2019, Vale announced there was a fire affecting a conveyor belt system at its distribution centre in Malaysia.

Vale anticipate this will result in a 10 to 15 day halt in operations and note that a planned 10 day shutdown for maintenance was already scheduled for this period.

Commenting on the event, Wood Mackenzie Senior Research Analyst, Alex Griffiths, said:

"Vale shipped around 1.8 Mt from its Malaysian distribution centre in February 2018 – a very typical month.

"A 10 to 15 day unexpected shutdown translates to a 0.6 Mt to 1.0 Mt reduction in exports. But we do not think average export volumes will suffer. Losses can now be made up next month.

"Vale ships on average around one vessel every two days from Malaysia but the distribution centre is capable of discharging one vessel daily. The export berth only has one ship-loader but it has a nominal capacity of 8,000 tonnes per hour – more than enough to fill a capsized vessel in a 24-hour operation.

"Therefore, if stocks are available (the stockyards have capacity of 3.2 Mt), the centre should be in a position to increase March shipments to make up for this loss. The capacity of the import berth (10,500 tonnes per hour) exceeds that of the export berth and so stocks can rise during normal operations. As Vale indicated, a 10-day shutdown was coincidentally planned for this period the most likely outcome is that the company can make up any lost tonnages in March.

"Should the outage exceed the 10 to 15 day estimate, Vale will have to make up around 0.06 Mt per day in lost shipments.

"The majority of material from the Malaysian distribution centre is Brazilian Blend fines destined for China. A significant delay in restarting operations would add to pressure on this segment of the market – already likely to suffer in response to reduced supply following the tragic dam disaster on the 25th January. However, Vale has indicated that damage to the Malaysian conveyor transfer housing is material only, and therefore we expect shipments to resume no longer than the indicated 15 days."

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