OREANDA-NEWS. Brazil's Samarco will not halt iron ore pellet exports despite the closure of its Minas Gerais mine after two of the tailings dams at its Germano unit burst last week.

The company, a joint venture between UK-Australian BHP Billiton and Brazilian firm Vale, will draw on existing stocks of iron ore pellets until inventories are exhausted — keeping shipments at expected levels in the short term and keeping freight rates stable.

Dry bulk freight rates have fallen this year as much of the additional iron ore fines consumed in Asia-Pacific has come from Australian producers rather than Atlantic basin producers. The journey from Australia to Asia-Pacific is much shorter than from the Atlantic basin, meaning that ships are occupied for shorter periods and spend more time competing on the spot market — pushing rates down.

Any shortfall in pellet production could be offset by an increase in pellet production by Vale, which produced 12.2mn t of pellets in the third quarter, compared with Samarco's 7.2mn t. Vale's pellet output was 6.6pc higher year on year in the third quarter, mainly because of the ramp-up of the Tubarao 8 pellet plant. Vale halted pellet production at three Brazilian pellet plants in 2012 in response to slower demand for pellets in China, including the 7mn t/yr Maranhao facility, at the Ponta da Madeira port in Sao Luis, as well as the Tubarao I and Tubarao II plants.

The loss of Samarco supply may support pellet and pellet feed concentrate prices in China, as Chinese demand for imported pellet feed and pellet peaks seasonally in the first quarter of the year during the Chinese winter, when domestic pelletising output dips and many northern Chinese mines reduce production.

But most alternative pellet suppliers to Asia-Pacific are in the Middle East, such as GIIC, or further west, including Sweden's LKAB or Rio Tinto's Canadian subsidiary IOC. As such, any vessels carrying pellets to Asia-Pacific to substitute for the lost supply would be occupied for a similar amount of time as a Brazil-China journey and, therefore, help support spot rates by reducing the amount of available tonnage.

Samarco produced 25.08mn t of pellets last year, of which 16.5pc (4.14mn t) was shipped to China and 22.4pc (5.65mn t) to the rest of Asia. Of the remainder, 23.1pc (5.79mn t) was shipped to the Middle East and Africa, 21pc (5.27mn t) to Europe and 17pc (4.26mn t) was shipped elsewhere in the Americas.