Vale and BHP may have good chances to be among winners in upcoming ‘green revolution’

RIO DE JANEIRO, BRAZIL – In a world increasingly attentive to ESG (environmental, social and governance practices), the environmental issue has gained strength in debates. However, in the commodities world, the green issue could represent a major challenge for many companies.

During an event organized by Ohmresearch, Managing Director of Tarraco Commodities Solution Gilberto Cardoso pointed out how this change towards environmental focus will affect mining and steel companies, as many of them still have obsolete and highly polluting structures.

He says that the most important aspect is the use of DRI (Direct Reduced Iron), called sponge iron, in steel production, which is less polluting and uses a cleaner process than the one currently employed. However, to create this element, iron ore of a high degree of purity (above 65%) is required, among other factors.

And this is where issues arise. Cardoso points out that the market may not have enough raw material to undergo this green transformation in its production processes.

The executive says that sector companies are truly concerned about this scenario and that they may not be able to achieve their KPI (key performance indicators) goals and limits due to the shortage of raw material. “We are in a paradigm shift and there is a shortage of raw material to do this, and the first market impacted may be Europe,” he says.

On the other hand, he explains that companies unable to access this purer ore and other key elements for the change can access other strategies. Among them, Cardoso says it is possible that ore pellets currently used (less pure) could be used to meet the requirements for the change.

Vale and BHP are good opportunities

Given this scenario, Cardoso points out that there are some opportunities among mining and steel companies, both because of their structure to adapt to the new model, but also because they have exposure to assets considered “cleaner,” such as copper and nickel.

Among the current companies, which already have international scale, he highlights some characteristics for them to stand out, such as a lower cost, assets with expansion capacity with low or medium capex cost, high quality reserves, a more comfortable cash position for financing, and a positive history in relation to accidents.

And Vale, although not well regarded in this last aspect by the population due to the Mariana and Brumadinho tragedies in its recent past, was pointed out by the executive as one of the best positioned to enter this new world.

He recalls that the Brazilian mining company is the world’s largest producer of iron ore pellets, accounting for over 30% of the market, and is more comfortable in the issue of access to higher purity ore.

Cardoso believes the company is prepared for the transition, although he points out that it does not have as much exposure to the copper market, partly offset by the increase in nickel production.

Another company the executive highlighted positively is Anglo-Australian BHP, which has good expansion capacity in its plants, with a large exposure to the current market and also – through its copper and nickel business – to the energy transition.

Consequently, it will not need to make large investments to join the “green revolution.” “It is one of the best positioned companies in this energy transition in commodities,” he says. “BHP’s diversification is playing in its favor.”

Cardoso also mentions Ukrainian mining company Ferrexpo, as well as steelmaker ArcelorMittal, as companies that can benefit from this transition.