Vale and CCCC to build a flat steel mill, though slab supply undetermined
Vale, the world largest iron ore producer, and China Communications Construction Co. (CCCC), a state-owned engineering and construction company to partner for building a 300,000 tonnes/year flat steel mill in the northern Brazilian state of Para.
The memorandum of understanding (MoU) has now been signed between Concremat, Vale and the state government of Pará. Vale is going to provide financial collateral for the project funding. The project is estimated to require BRL 1.5 billion (USD 350 million) capital expenditure (CapEx). The construction is expected to start in 2021 and commercial operations to commence by 2023. Vale will have the option of converting its financial collateral into equity if this becomes necessary in the future.
CCCC has been in Brazil since 2016 since it acquired 80% share in Concremats. In 2017, it bought 51% of a port terminal construction project in Maranhao (North East of Brazil), together with WTorre.
Commodity Inside View:
Indeed Brazil already has excess HRC production capacity, though it is concentrated in the Southern states. Often, it is more economically viable for the North and North East states to import, rather than sourcing from the South. The aim of the plant is likely to target this niche market.
A steel mill in the Northern state of Para has been on Vale’s wish list for quite a long time. Initially, Vale planned to build Aços Laminados do Pará (ALPA) as a 100% subsidiary, to produce 2.5 million tonnes/year of slabs, with half being shipped to California Steel and the other half to supply local industries and the merchant slab market. ALPA was supposed to start operations in 2014. However, back in 2013, Vale announced to postpone any further works until 2017. However, construction on the project did not resume. We understand that Vale has abandoned ALPA in favour of Companhia Siderúrgica do Pecém (CSP), in the state of Ceara. CSP is a joint venture between Vale, Dongkuk Steel and POSCO, owning 50% 30% and 20% shares respectively. CSP started slab production in 2016, with 3 Mt of slab production capacity.
We understand that the new CCCC’s mill will require slab as a substrate to produce 300,000 tonnes/year of HRC. There are two viable options for Vale to ensure uninterrupted supply of slab for the new mill. One approach would be to produce slab internally. Vale can use its Tecnored technology for that purpose. The Tecnored technology is capable of producing pig iron with reduced coking coal and also reduce production cost by 30%. It would be a great opportunity for Vale to use its technology on a larger scale since it was used in a 75,000 tonnes/year pilot project in 2011.
The other cost-effective option would be to source slab from CSP. This can be an ideal option as CSP would not be far from the new plant. However, slab prices need to fall from current high levels.
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