Ph

oto

: M

arc

elo

Co

elh

o

The structural value of higher grade oreRogerio Nogueira – Iron Ore and Coal Marketing Director

Singapore Iron Ore Week 2018

24 May 2018

Disclaimer

This presentation may include declarations stating Vale’s expectations concerning future events or results.

All declarations, when based on future expectations rather than historical facts, involve various risks and

uncertainties. Vale cannot guarantee that such declarations will prove to be accurate. Such risks and

uncertainties include factors related to the following: (a) countries where we have operations, especially

Brazil and Canada; (b) the global economy; (c) the capital markets; (d) mining and metals businesses and

their dependence on global industrial production, which is cyclical by nature; and (e) the high degree of

global competition in the markets in which Vale operates. To obtain additional information about factors that

could give rise to results different from those estimated by Vale, please consult the reports filed with the

Brazilian Securities Commission (CVM), the Autorité des Marchés Financiers (AMF), the US Securities and

Exchange Commission (SEC), The Stock Exchange of Hong Kong Limited, and, in particular, the factors

discussed in the “Estimates and projections” and “Risk factors” sections of Vale’s Annual Report – Form 20F.

1. Structural changes in Chinese steel production and

iron ore consumption patterns

2. Cost and productivity benefits of using high grade ores

3. Trends in iron ore product quality and Vale’s

commitment to the steel industry

Agenda

1. Structural changes in Chinese steel production and

iron ore consumption patterns

2. Cost and productivity benefits of using high grade ores

3. Trends in iron ore product quality and Vale’s

commitment to the steel industry

Agenda

Beijing opera

house November

2015

Beijing opera

house November

2017

From this… …to this!

Chinese steel industry capacity utilization increased with additional plant closures and higher pig iron production

7Source: NBS, CRU

Steel industry capacity utilization

%

60%

65%

70%

75%

80%

85%

90%

95%

2014 2015 2016 2017 2018 2019 2020 2021

7

Pig iron production

Mt

691

698

711

2015 2016 2017

7 Mt

+1.0%

12 Mt

+1.8%

0

10

20

30

40

50

60

70

80

Jan-1

6

Apr-

16

Jul-16

Oct-

16

Jan-1

7

Apr-

17

Jul-17

Oct-

17

Jan-1

8

Apr-

18

35% 36% 40%

2015 2016 2017

Lower Grade

Higher Grade

8

Breakdown of inventory at Chinese Ports2

Mt

Notes: 1Excludes pellets and Chinese Concentrate; 2 Data from twelve (12) main Ports; High Grade Ores in these charts are 63% Fe and up

Source: NBS, Mysteel

Lower Grade

Higher Grade

Share of high grade ores in burden mix1

%

100% 100% 100%

Increased capacity utilization drove up demand of higher grade ores

9

-40

-30

-20

-10

0

10

20

30

Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18

Iron ore price spreads: 65 to 58% Fe MBIO

US$/t

Source: Metal Bulletin

19 41 47

MB65

MB58

Yearly Average

Differentialsxx

And reinforced the relative value of higher grade ores

MB62

9

10

1. Structural changes in Chinese steel production and

iron ore consumption patterns

2. Cost and productivity benefits of using high grade ores

3. Trends in iron ore product quality and Vale’s

commitment to the steel industry

Agenda

Impact on hot metal costs¹ (high x low grade ores²)

US$/t

11

The cost reduction associated with the use of high grade ores is significant

5,9

20,5 19,4

14,6

Metallic burden impact Coke consumptionimpact

Value impact on hotmetal costs

Value impact on highgrade ores

Notes: 1) Cost differentials based only on transformation costs, not on acquisition costs; assuming coke cost of $280/t (HCC CFR at Chinese mills of $215/t, SSCC of $125/t) and PCI of $140/t

2) High grade ore: Fe: 65%; Low grade ore: Fe: 56.6%

$/dmt of

iron ore

▪ Flux and burnt lime

consumption

▪ Coke breeze

consumption

▪ BF metallic burden

consumption

▪ Slag rate

▪ RDI (Reduction

degradation index)

12Notes: High grade ore: Fe: 64.5~65%; Low grade ore: Fe: 56.6%; slag rate of low grade ores @ 395 kg/t vs 292 kg/t for high grade ore. Considering 75% of sinter in metallic burden

Increase in slag

reduces blast furnace

productivity

+

Additionally, the use of high grade ores increase blast furnace productivity

Slag rate

reduction25%

Impact on productivity

x

Schematics of a blast furnace

COKE

SINTER

COHESIVE

ZONE

HEATED

AIR

Slag volumetric

share in BF

burden30%

Volume effect8%

Increase in blast

furnace

productivity~20%

Permeability

effect12%

13Notes: 1High grade ore: Fe: 65%; Low grade ore: Fe: 56.6%. 2Margins = Rebar spot price – raw materials cost – average conversion costs (Mysteel)

Steel margin ranges (US$/t)

Productivity value of high vs low-grade ores1

US$/dmt of high grade iron ore

11,7

19,7

27,8

50 100 150-100

0

100

200

300

2016 2016 2017 2017 2018

1 109 94

2016 2017 2018

Historical rebar margins in China2

US$/t Yearly Average Margins

High grade ores have a significant financial impact even in scenarios of more stringent steel margins

14Note: 1Typical Operation: 75% Sinter + 10% Aussie Lump + 15% Domestic pellet, BF Slag: B2: 1.13, MgO: 9.0%, Al2O3: 15.5% max

Combined benefits of higher x lower grade ores

Relative values of high to low grade ores

(US$/dmt of iron ore)

Co

ke

Price

s $

/t (

co

st d

rive

r)

330

22.5 34.2 42.2 50.3

280

19.4 31.1 39.1 47.2

230

16.2 27.9 35.9 44.0

180

13.1 24.8 32.8 40.9

0 50 100 150

Steel Margins $/t (productivity driver)

~20

~45

High demand scenariosLow demand scenarios

▪ Blast furnace capacity as the bottleneck

for the calculation of productivity gains

▪ Based on the operation of a typical

Chinese mill1

▪ Steel mills working mostly with imported

ores with restrictions in Al2O3

▪ Availability of high & low grade ores as

per current supply

Assumptions

1. Structural changes in Chinese steel production and

iron ore consumption patterns

2. Cost and productivity benefits of using high grade ores

3. Trends in iron ore product quality and Vale’s

commitment to the steel industry

Agenda

Iron ore CAPEX by major Australian players

USD bi

0

5

10

15

20

2010 2011 2012 2013 2014 2015 2016 2017

0

50

100

150

200

2010 2011 2012 2013 2014 2015 2016 20172018A

FAI1 in ferrous mining industry in China

RMB billion

1 FAI = Fixed Asset Investments

Source: NBS, Miner’s reports and Vale16

Investment in mining has decreased and mine depletion rate is now poised to go up

1Excluding direct charge ore

Source: NBS, Metal Bulletin and Vale 17

Vale’s role in improving overall ore quality in China has gained importance

China iron ore imports average Fe content1

% Fe

61,7

61,4

61,0

60,7 60,7

60,9 60,9 61,0

61,2

61,1

61,5

61,2

60,8

60,5 60,460,5 60,5

60,4

60,6

60,3

0,00

0,10

0,20

0,30

0,40

0,50

0,60

0,70

0,80

0,90

1,00

60,00

60,50

61,00

61,50

62,00

2010 2011 2012 2013 2014 2015 2016 2017 2018E 2020E

GapFe content imported ore into ChinaFe content imported ore ex-IOCJ into China

18

18

1 Does not include pellets and pellet feed for pelletizing

5%14%

23%35%

40%

42%

40%

40%

2015 2016 2017 2018E

Carajás Blend

Vale Sales1, Higher Grade Ore

% Share

Vale is committed to supplying high quality products to the market

Final remarks

19

▪ The Chinese supply side reform not only successfully tackled

pollution but also accelerated structural changes in iron ore

consumption patterns

▪ The cost reductions and productivity benefits of using high grade

ores became more evident and drove up price differentials

between low and high grade ores

▪ Vale’s product portfolio will deliver even higher value as

depletion rates intensify