Panorama Global do Mercado de Minério de Ferro Previsão de Produção, Demanda e Preço Novembro 2012 André Pinheiro +55-11-3073-3028 [email protected] Marcos Assumpção, CFA +55-11-3073-3021 [email protected]
Panorama Global do Mercado de Minério de FerroPrevisão de Produção, Demanda e Preço
Novembro 2012
André [email protected]
Marcos Assumpção, [email protected]
2
Agenda
SECTION 1 SUPPLY SIDE: WHAT IS “ACTUALLY” EXPECTED TO COME ON STREAM?
SECTION 2
PRICES: WHAT IS THE OUTLOOK? HOW WILL THEY BEHAVE?SECTION 3
DEMAND SIDE: IS THERE STILL DEMAND GROWTH? WHERE WI LL IT COME FROM?
SECTION 1SUPPLY:WHAT IS “ACTUALLY” EXPECTED TO COME ON STREAM?
0
100
200
300
400
500
600
700
Guided 2010-12 Growth Actual Growth?
(mtpy)
4
SUPPLY GROWING LESS-THAN-EXPECTED
� Australian iron ore production was expected to increase by more than 500 million tons in 2010-12;
?
� But less than 100 million tons was actually delivered…
Source: Rio Tinto and Itaú BBA
522470
~400355
0
100
200
300
400
500
600
700
(mtpy)
2011 Capex Plan 2012 Capex Plan 2013E Capex Plan Itaú BBA Forecast
5
SUPPLY GROWING LESS-THAN-EXPECTED
� Brazilian players have consistently revised their production guidance;
� The new targets are always lower numbers…
Source: Vale and Itaú BBA
Vale’s 2015 Production Target
6
SUPPLY GROWING LESS-THAN-EXPECTED
� The Chinese have invested heavily to expand iron ore capacity;
� However, production has not risen at the same pace…
Source: World Steel Dynamics and Itaú BBA
0
5
10
15
20
25
0
200
400
600
800
1000
2006 2007 2008 2009 2010 2011 2012
(USD bn)(mtpy)
Production (mn tons) Capital Outlays (USD bn)
0%
10%
20%
30%
40%
50%
0
20
40
60
80
100
120
140
Sep-05 Feb-07 Jul-08 Dec-09 May-11
(mn tons)
Chinese Iron Ore Production Chinese Iron Ore Grades
7
SUPPLY GROWING LESS-THAN-EXPECTED
� India’s Government has increased restrictions on iron ore exports over the past few years;
� As a result, India’s share of seaborne supply has decreased…
29%
1%0%
5%
10%
15%
20%
25%
30%
35%
Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12
(mn tons)
India
Source: Bloomberg and Itaú BBA
8
WHY IS GUIDANCE DIFFERENT FROM REALITY?
�Environmental Licenses;
�Logistics Constraints;
�Lack of Infrastructure;
�Declining Ore Grades;
�Funding – Price Volatility;
�Political Risk/Higher Taxes;
�Lack of Skilled Labor;
�Capex Inflation.
Source: Itaú BBA
9
SUPPLY: WHO DELIVERED THE CAPACITY INCREASES?
�The Australians delivered more capacity than the Brazilians;
0
100
200
300
400
500
600
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
(mn tons)
Brazil Australia
0
50
100
150
200
250
300
350
2005 2006 2007 2008 2009 2010 2011
(mn tons)
Vale Rio Tinto BHP Fortescue
Iron Ore Production: Brazil vs. AustraliaIO Production: Vale, Rio, BHP and Fortescue
Source: BHP, Rio Tinto, Fortescue, Vale and Itaú BBA
10
SUPPLY: WHO DELIVERED THE CAPACITY INCREASES?
2005 2006 2007 2008 2009 2010 2011
Vale Australians (Rio, BHP and Fortescue)
20%
25%
30%
35%
40%
2005 2006 2007 2008 2009 2010 2011
(mn tons)
33%
30%
20%
25%
30%
35%
40%
2005 2006 2007 2008 2009 2010 2011
(mn tons)
31%
37%
IRON ORE SEABORNE MARKET SHARE %
�The Australians delivered more capacity than the Brazilians;
Source: Bloomberg, World Steel Association and Itaú BBA
SECTION 2
DEMAND:IS THERE STILL DEMAND GROWTH?
WHERE WILL IT COME FROM?
12
DEMAND: WHERE DID IT COME FROM?
Apparent Steel Use, Finished Steel (mn tons)
2007 2008 2009 2010 2011
423435
548
576
611+45%
Source: World Steel Association and Itaú BBA
13
DEMAND: WHERE DID IT COME FROM?
Apparent Steel Use, Finished Steel (mn tons): 2007- 2011
+137 mn tons
+188 mn tons
Rest of the World
-51 mn tons
Source: World Steel Association and Itaú BBA
14
DEMAND: WHERE DID IT COME FROM?
�Chinese went from 10% to 50% of global steel production;
15%17%
20%23%
27%
31%35%
37% 38%
47%45% 46% 47%
00%
05%
10%
15%
20%
25%
30%
35%
40%
45%
50%
0
100
200
300
400
500
600
700
800
00 01 02 03 04 05 06 07 08 09 10 11 12E
(% o
f Glo
bal S
teel
Pro
duct
ion)
(Ste
el P
rodu
tion
mn
tons
)
China Became The Largest Steel Player
Source: World Steel Association and Itaú BBA
2010 2011 2012 11/10 12/11
World 1,286.2 1,365.3 1,448.8 6.2 6.1 118.4
European Union (27) 144.1 153.8 159.6 6.8 3.8 80.6
Other Europe 29.6 32.8 35.2 11.0 7.3 111.4
C.I.S. 48.4 52.2 56.8 7.7 8.8 100.8
N.A.F.T.A. 110.3 122.0 129.8 10.6 6.4 92.3
Central & South America 45.5 49.3 53.5 8.4 8.5 129.6
Africa 25.9 25.0 27.4 -3.2 9.3 124.6
Middle East 45.3 46.5 49.9 2.6 7.3 113.0
Asia and Oceania 837.2 883.7 936.7 5.6 6.0 135.8
China 576.0 610.5 641.1 6.0 5.0 151.7
mmt %
2012 as % of 2007
15
DEMAND: WHERE DID IT COME FROM?
Apparent Steel Use, Finished Steel
Source: World Steel Association and Itaú BBA
16
DEMAND: HAS CHINESE STEEL CONSUMPTION PEAKED?
Source: Vale, Rio Tinto and Itaú BBA
17
DEMAND: WHERE WILL IT COME FROM?(U
rban
izat
ion
Rat
e %
)
0
10
20
30
40
50
60
70
80
90
100
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
Brazil
Korea
China
India
Source: Vale, Rio Tinto and Itaú BBA
Urbanization Rate (%) Shanghai Pudong Financial District
18
DEMAND: WHERE WILL IT COME FROM?
Source: BHP and Itaú BBA
19
Middle-Class – by region (in millions)
Source: AngloAmerican, OECD and Itaú BBA
Europe
Middle East & North Africa
Sub SaharanAfricaCentral &
South America
North America
Asia Pacific
2009
2030
100mn
500mn
1bn
DEMAND: CHINESE MIDDLE -CLASS
SECTION 3
PRICES:WHAT IS THE OUTLOOK? HOW WILL THEY BEHAVE?
21
PRICES: WHY WON’T THEY DROP TOO MUCH IN THE LT?Iron OreCapex/ton USD/ton 110
Lead Time years 6
LT Iron Ore Price (FOB) USD/ton 75
Mining Royalty % 5%
LT Iron Ore Price (FOB) - (ex-royalty) 71
Cash Cost/ton USD/ton 47 Cash Cost Breakdown (USD/ton)
SG&A/ton USD/ton 3 Mining 20
EBITDA/ton USD/ton 21 Railroad 12
Depreciation/ton USD/ton 4 Port 15
Maintenance CAPEX/ton USD/ton 4
Effective Tax Rate % 34%
Perpetual Grow th % 0%
WACC % 7%
Years 1 2 3 4 5 6 7 8 9 10 Pe rpe tuity
CAPEX USD/ton (18) (18) (18) (18) (18) (18) - - - -
EBITDA USD/ton - - - - - - 21 21 21 21
Depreciation USD/ton - - - - - - (4) (4) (4) (4)
EBIT USD/ton - - - - - - 17 17 17 17
Taxes USD/ton - - - - - - (6) (6) (6) (6)
Revenues - - - - - - 75 75 75 75
FCF
CAPEX USD/ton (18) (18) (18) (18) (18) (18) - - - -
EBITDA USD/ton - - - - - - 21 21 21 21
Taxes USD/ton - - - - - - (6) (6) (6) (6)
WK USD/ton - - - - - (4) - - -
CAPEX Maintenance USD/ton - - - - - - (4) (4) (4) (4)
FCF USD/ton (18) (18) (18) (18) (18) (18) 7 11 11 11 159
Discount Factor 1.1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 2.0 2.0
PV FCF (17) (16) (15) (14) (13) (12) 5 6 6 6 81
NPV 16
IRR 9%
+ Mining Cash Cost: USD20/ton
+ Logistics Cost: USD 12/ton
+ 3rd Party Port Cost: USD 15/ton
+ SG&A Expenses: USD 3/ton
+ Royalties: USD 4/ton
22
PRICES: HIGHER CHINESE DEPENDENCY = + VOLATILITY!
�China became the most important buyer;
�The Chinese behave like traders;
�Changes in inventories could have a strong impact on prices.
-10
-8
-6
-4
-2
0
2
4
6
8
10
nov-08 abr-09 set-09 fev-10 jul-10 dez-10 mai-11 out-11 mar-12 ago-12
(USD/ton)
Daily Price Variations
Source: Bloomberg and Itaú BBA
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
nov-08 abr-09 set-09 fev-10 jul-10 dez-10 mai-11 out-11 mar-12 ago-12
(%)
Daily Price Variations
23
PRICES: WHAT IS OUR FORECAST?
� Supply will continue to increase at a slower-than-e xpected pace;
� New projects won’t advance if prices drop too much;
� Demand is expected to increase gradually (China, In dia and EMs);
� Prices sustained by high-cost producers (in China a nd out of China).
128.0 120.0
110.0 100.0
95.0 95.0
0
20
40
60
80
100
120
140
2012E 2013E 2014E 2015E 2016E Long-term
(mn tons)
Itaú BBA
Itaú BBA – Iron Ore Price Curve
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