Good morning, ladies and gentlemen. Welcome to Vale's Conference Call to Discuss First Quarter 2020 Results. At this time, all participants are in a listen-only mode. Later, we'll conduct a question and answer session, and instructions will be given at that time. If you should require assistance during the call, please press the star key followed by zero. As a reminder, this conference is being recorded, and the recording will be available on the company's website at vale.com at the investors link. This conference call is accompanied by a slide presentation, also available at the investors link at the company's website and is transmitted via internet as well. The broadcasting via internet, both the audio and the slides change, has a few seconds delay in relation to the audio transmitted via phone.
Before proceeding, let me mention that forward-looking statements are being made under the safe harbor of the Securities Litigation Reform Act of 1996. Actual performance could differ materially from that anticipated in any forward-looking comments as a result of macroeconomic conditions, market risks, and other factors. With us today are Mr. Eduardo de Salles Bartolomeo, Chief Executive Officer, Mr. Luciano Siani Pires, CFO, Mr. Marcello Spinelli, Executive Officer for Ferrous Minerals, Mr. Mark Travers, Executive Officer for Base Metals, Mr. Carlos Medeiros, Safety and Operational Excellence Executive Officer, Mr. Luiz Eduardo Osorio, Executive Officer for Sustainability and Institutional Relations, Mr. Alexandre Pereira, Executive Officer for Business Support, Mr. Alexandre D'Ambrosio, General Counsel, and Mrs. Marina Quental, Director of People. First, Mr. Eduardo Bartolomeo will proceed to the presentation on Vale's first quarter 2020 performance, and after that he'll be available for question and answers.
It is now my pleasure to turn the call over to Mr. Eduardo Bartolomeo. Sir, you may now begin.
Okay. Thank you. Good morning, everyone. First of all, I hope that you and your families are well and able to maintain social distance. This will be a very different call as our management team is also apart from each other, each one in its house or office. First thing I would like to point out is that Vale is facing this unprecedented scenario brought by the COVID-19 with responsibility, discipline, and sense of urgency. Since March 13th, we have been managing the company remotely. Just to give you an idea, we went from 600 to 20,000 remote accesses, and we continue to operate our assets. Definitely, we are in a war scenario with a common enemy. For this reason, Vale joins forces with communities, governments, and our value chain with a humble attitude to win this war.
The main message that we have been communicating to our employees and partners are resilience and overcoming. Resilience because this war will not be a quick one. Overcoming because I'm sure that we'll succeed and come out much better as a company and as society. I also want to emphasize that our effort with the full reparation of Brumadinho remains firm. Finally, reparation, safety, and people remain our priorities and are very up-to-date in the face of this crisis. Could you please advance the slide? Well, we have a very solid plan to face the pandemic. In January, we started to monitor the scenario and to structure and implement preventive and safety actions. Our response plan is ongoing and is updated constantly.
It has five fronts which prioritize, first, the continuity of the reparation of Brumadinho and our dam safety actions, the health and safety of our employees and our neighboring core communities, the support in fighting the pandemic honoring our new package to society, the support to our value chain, and finally, the stability of our business. Could you please advance the next slide? As I said earlier, our effort to fully repair Brumadinho remains firm and goes together with our actions during the pandemic. We remain committed to the reparation, and so far, almost 7,000 people are part of the civil or labor agreements already signed, which total about BRL 3.6 billion with emergency aid paid so far as well. Regarding safety, the dam de-characterization plan remains on track and our tailing management system is improving.
We have implemented the function of engineer of record as an additional step in assessing our structure in Brazil. The engineer of record is external to the operations and is directly linked to Vale's line of defense. Thus, our commitments to Brumadinho and safety continue. Please, could you go to the next slide? Second front of our plan addresses the health and safety of our people, which is our top priority. In all of our operations, we have implemented world-class safety standards to face the pandemic, and we believe we were one of the first companies in Brazil to adopt the home office regime on March 13th. On the slide, you can see we mentioned the main measures, but the watch words are safety and discipline at home, in our operations, at all times.
So far, three sites have adopted more restrictive measures as we already disclosed, in Malaysia, Canada and Mozambique. Although the impacts of COVID are currently contained, advances in the pandemic may lead to more restrictive measures in these or other operations. Could you please go to the next slide. We are fully aware of our responsibility to society and our essential role in the economy. At the same time that we took our operational actions, in a listening process, we offer support to society. We have already committed BRL 500 million to fight the pandemic in Brazil, of which BRL 353 million were already spent. It's not just about financial resource.
We made use of our logistics structure in China, where we have been present for almost 50 years, to purchase and bring to Brazil over 30 million personal protection medical equipment and 5 million rapid tests to detect the new coronavirus. In total, 15 cargo planes will bring these volumes. In addition, we are providing resources to expand the capacity of existing hospitals and to build field hospitals in territories that we operate. In other countries where we operate, we have also made important donations to the healthcare system. For example, in Malaysia, Mozambique, and Indonesia. On the front of our value chain, we are committed to keeping it very healthy and preserving the jobs. At a time when we are experiencing great uncertainty we are using our presence at the base of the production chain to help our suppliers face the pandemic.
We have anticipated payments to around 3,000 small and medium-sized suppliers in Brazil, injecting over BRL 900 million into the local economy to date. We have also provided financial support to the contractors in projects suspended by us so far. We believe that with these actions, we are helping society to overcome together the challenges of this crisis. Next. We continue to stabilize our production. In the first quarter, the impacts of COVID-19 in our business were limited. There are still many uncertainties. Stabilizing our production remains a challenge. We started to see fruits of our work in North Atlantic with a solid nickel production in the first quarter of this year and the last quarter of 2019, as a consequence of relevant actions to stabilize the value chain that we took last year. In iron ore, the quarter was very difficult.
On the positive side, we hope to resume Timbopeba activities as early as next week. This is another important step to resume and stabilize our iron ore production in the Southern and Southeastern systems. Next slide, please. Well, as we've been saying, in addition to the pandemic plan, which also addresses the reparation of Brumadinho, the improvement of our safety, and the stabilization of our production, capital discipline is fundamental to de-risk Vale. We have been reinforcing this point in other opportunities. In this regard, I would like to point out the withdrawal of $5 billion from our revolving credit. We continue with our approach of prudence, reinforcing our balance sheet to face an environment of great uncertainty. It was an insurance at an interesting cost, increasing our margin of safety.
Finally, I would like to reinforce, as I said, that we keep working quickly and with quality in the reparation of Brumadinho, and to reduce the uncertainties regarding the COVID-19 impacts. I believe that we will have better conditions to restore our dividend policy. Next slide, please. Well, to conclude, given this context, I'm sure that Vale is in a solid position to face this critical scenario. Iron ore is one of the least impacted commodities to date. Our main market, China, is already recovering, although we can expect reduction in Europe or in some other countries as well. Vale has already proven that it's capable of resisting and recovering. The commitment of the executive board and our board of directors is to continue to do everything in our power to ensure the safety of our employees and our operations.
Finally, I want to thank very much our employees and partners for their efforts over the past weeks. I now pass the floor to Luciano so that he can detail the results of the first quarter of 2020. Thank you all for your attention. I'll be back for the Q&A. Thank you.
Good morning. Good afternoon. I'm going to address five items here today. First item, costs. As you saw, costs were high in iron ore in the first quarter, $16.2 per ton. It's seasonally high because of low volumes, we had even lower volumes this quarter. We also had some additional impacts like the mud in the north, the lineup of vessels, waiting for it to be charged because of problems with moisture and for the excessive rains in the north. We had also problems with maintenance. We had a fatal accident in Mozambique in one of our conveyor belts in January, so we stopped and did the actual work in all our conveyors around the world, including the iron ore conveyors, and so we spent a little more on maintenance. We had a little offset for the exchange rate, the final result was the $16.2 you saw.
The outlook for next quarter is of a slight decline, but very marginal because we still have some important effects that will weigh on costs. The first one is the carryover. Part of what we produced has gone into inventories at a higher cost, so it will impact next quarter. Some COVID-related expenses. For example, we're providing additional benefits for our employees, which may weigh $0.30-$0.40 on the costs next quarter. Because we are resuming operations in Timbopeba, for example, which is higher cost, because it's not gonna be a blasting operation, we're not gonna use explosives, we're gonna use mechanical dismantling of the ore, so it's going to be high cost. Also, because of the mix, we're gonna have more ore being sold from the south and the southeast.
We're also undergoing the scheduled 10-day maintenance of the long conveyor belt in S11D as we speak. Many also small effects that will add up and will not allow us to see the major impact of the currency devaluation on costs on the second quarter. On the third quarter, we're very confident that with cost dilution, with no maintenance, we're going to run certainly below $14 per ton. If the exchange rate continue at current levels, certainly maybe even at $13 per ton. The second topic is freight. You also saw sharp declines in spot freight rates and in the oil price. How is the outlook for freight within Vale given that the decline was very small this quarter, just $1 per ton to $17 per ton?
Well, the spot freight rates will not influence also freight in the second quarter because Vale uses mostly the spot market when it produces more. Because the production in the second quarter is not as high as in the third and the fourth quarter, the use of the spot freight will be naturally smaller. We will use more of our own fleet. In the third and fourth quarter, if the spot rates continue to be lower, we're also gonna go more into the spot market, and we'll take advantage of that. The oil prices, you will see a significant impact already in the second quarter. Vessels are refueling. Actually, we even had a small increase in fuel costs this quarter because of the IMO regulations and because we fueled part of our fleet with the low sulfur oil, which is more expensive.
Starting from next quarter, you will see the impact, and we are forecasting a decrease of at least $3 per ton on freight rates next quarter. The third aspect is foreign exchange. We had a 29% devaluation of the Brazilian Real in the quarter, end-to-end, very unusual, compares only to what happened in the third quarter of 2015. As the balance sheet of Vale, officially, everything is measured in Brazilian Reais, there are all sorts of impacts from such a devaluation in our accounts. I would like you to pass on to the first slide after Eduardo's presentation, where we show a number of balance sheet accounts that were heavily impacted by the devaluation this quarter. On the right-hand side, you see in blue, commitments of Vale, Brumadinho, Refis, Samarco and Renova, and our gross debt.
The numbers you see already translated in U.S. dollars are the declines in those liabilities given the devaluation. Those liabilities are originally measured in reais, but when you translate them back to U.S. dollars to present the accounts for you, they have a much smaller value. Almost 3 billion U.S. of declines in the value of commitments, which is very good for Vale. On the asset side, we do hold balances in cash in Brazilian reais. Actually, we were holding a lot of Brazilian reais when the devaluation came. Those same balances, when translated to U.S. dollars, they lost $914 million in value. You have the losses on the swaps because we have so many commitments in Brazilian reais, and we see ourselves as a company. We manage the company in U.S. dollars.
We hedge part of those commitments in Brazilian reais back into U.S. dollars. This a billion U.S. is the offsetting effect of some of the declines you see in blue. Some of the declines were actually not naked. They were hedged, and this is the offsetting effect, and that flows through our income statement because this is a derivative instrument, so that flows into the financial results. Net-net, as you can see, there's a positive gain. Also because Vale has paid amounts related to Brumadinho and to Refis. The expanded net debt, when you add on top of Vale's net debt, all those commitments, has reduced substantially over the quarter, being a major shift in our balance sheet position. The fourth item is cash flow generation. You saw that the cash flow generation in the quarter was relatively small compared to past first quarters.
It's naturally also seasonally lower. The biggest impacts were from inventories and working capital, accounts payable. The inventories were part decision of Vale. For example, we decided not to sell nickel at those depressed prices. We also sold less copper than we produced. We sold slightly less iron ore than we produced. We have a $200 million U.S. buildup in inventories, mostly expanded playing in base metals. On the accounts payable, we had some important payments on the quarter. The first one is the take-or-pay in the south system of MRS. Because we're not transporting enough ore through the railway, which is jointly owned with other companies, we had to pay the top up for the take-or-pay in this quarter of $120 million. You should not expect this, obviously, to repeat itself in the second, third, and fourth. That's a yearly expense.
We also had a $200 million payment of profit sharing for our frontline employees. A number of one-off expenditures, some of them unique, some not so one-off, like the profit sharing, but that affected cash flow generation in a quarter. Looking forward, we expect cash flow generation to again be robust as the working capital accounts, they recover themselves, so to boost cash flow. Finally, COVID. Some highlights on the financial impacts. I'm not going to discuss volumes because volumes were already considered on the guidance that we made public last week on the production report. Not gonna discuss prices. This we may speculate here in the Q&A session, but I'm focusing here just on costs and expenses, out-of-pocket expenses because of COVID.
The ballpark number that we see so far, including not only what we already spent, but what we look forward over the next few months, is $500 million U.S. They will appear in many different accounts, including the most part of this is expenditure with the stoppage of projects. For example, it's costing us $55 million U.S. to stop the project in Canada, in Voisey's Bay. Stoppage of projects in Brazil is costing about $50 million per month, and this will not flow through EBITDA or income statement. This will accrue to the project cost, but it is an economic impact. We will spend about $100 million in humanitarian aid. We have also capital injections in our steel subsidiary in the north of Brazil that need to be made. We had some benefits for employees, about $50 million each of those accounts.
When you put this all together, the estimate is about $500 million of out-of-pocket additional costs and expenses for Vale. Finally, if you think about other impacts on cash flow, you're seeing that we're supporting our value chain. We're supporting suppliers with advanced payments. We may support clients, but this will be mostly offset by the temporary savings on CapEx, because the stoppage of projects, although they're costing us economically, we're spending less than if they were at full steam and the works were ongoing. As you saw, CapEx guidance was revised downwards and should basically be offsetting the working capital deterioration because of the support of the value chain. With this, we can open for questions and answers.
Thank you. Ladies and gentlemen, we'll now begin the question and answer session. If you have a question, please press the star key followed by one. If at any time you would like to remove yourself from the questioning queue, press star two. Please restrict your questions to two at a time. Our first question comes from Carlos De Alba, Morgan Stanley.
Good morning, everyone. Hopefully, you and your families are doing well. Just a question, perhaps starting on dividends. I understand the difficulty of the situation, clearly not only Brumadinho, but the COVID-19 pandemic, and the pressures that this puts in the company's different stakeholders, and how the company is responding very responsibly. Can you maybe, Bartolomeo or Luciano, give us a roadmap or what needs to happen for the company to resume the dividends? Clearly, it has a strong balance sheet. It generates very strong cash flows. At some point, I think the company wants to resume dividends, but I just wanna understand, how do you see the roadmap ahead? Are there any other potential uses of cash, like you buying back the preferred shares that were sold a few years back, or other uses of cash that could improve the cash flow generation going forward?
Thank you very much.
Thank you, Carlos. Our families are doing well. Thank you. I think dividends is a thing that the roadmap, as we've been saying since the beginning, is the reparation, the quality, and the speed of the reparation. We believe that is undergoing really well by the facts, by the way we repair the environment, the level of indemnities. I think this roadmap is pretty online, on where we think we should be. What happened is that you mentioned the level of uncertainty that brought to us is with COVID, made us, how can I say that? Bring some extra caution to our balance sheet. That's why we took the revolver. Why we did that? We had to look that in a timely basis.
Was the beginning of the crisis that what impacted us on beginning of March, and we had tail risks that we couldn't see at the time. One is a second wave of contamination in China. That's still not done, but looks even not very reasonable now, but still on the table. Secondly, any other kind of stoppages in our operation. I think to answer your question objectively, as long as we are able to give back the revolver, I think we are able to do what I meant about capital discipline, is to allocate to the shareholders their part. I think dividend can come back after the uncertainty of COVID is out of the equation, because we believe that, we know the size of the damages that we created in Brumadinho.
We are repairing, and with that in mind, I think after paying the revolver, we could resume dividends. Of course, propose that to the board of directors and resume our policy. For the use of cash, I would like to ask Luciano to elaborate a little bit.
Carlos, we used BRL 800 million on the last quarter of last year to buy back the preferred shares, and there's already a benefit this year, so there will be not a BRL 200 million outflow towards those preferred shares because we bought them back. we do not anticipate any other major alternative uses of cash. the cash will be redirected towards the shareholders once we repay back the revolver.
Our next question comes from John Brandt, HSBC.
Hi, good afternoon. Thanks for taking my questions. Just kind of a follow-up to Carlos's question. I know you've talked a lot about the 10 billion in net debt, but if you look at sort of your adjusted liabilities, including Brumadinho and Samarco and the Refis, et cetera, total liabilities is closer to 15 billion. I guess sort of a two-part question. Are you sort of comfortable at that 15 billion level, or would you look to potentially, especially given the weak BRL, would you look to maybe prepay a portion of the sort of non-debt liabilities? if you could just sort of explain, once you're cleared for dividends, given the weakness in the share price, how do you look at sort of the cash dividends versus buybacks at this point? Thank you.
Luciano can go ahead.
Okay. John, the reason why we talk about those 15 billion in expanded liabilities is to call your attention that when we think about capital allocation, we have in mind those additional commitments. That's the purpose. The 10 billion net debt target was established in a situation before the Brumadinho dam rupture, in which we already had part of those additional liabilities. we already had Refis at that time, we already had Samarco and Renova liabilities, and we established the 10 billion USD debt considering those commitments already. today we stand at five, right? The headline net debt without those additional commitments.
you may say, "Okay, so now you're five billion below your original target, which you established when those additional commitments were already there." However, there's one additional commitment that was not there when we established the $10 billion target, which is Brumadinho itself, which today stands at $4 billion in our balance sheet. you may say, "You are $5 billion below your original target, but you have an additional commitment that did not exist of $4 billion when you established that target." today we are slightly better, so to speak, than the target we set. Which means, that we don't intend to make additional uses of money in order to pay back any of those that headline debt or of those commitments. In fact, we cannot pay because they have a schedule which is not controlled by us.
Refis and Brumadinho and Renova, it's as we execute on our programs. The money generated will be available fully to return to shareholders. We frankly do not believe that in a post-COVID world, in a world where we pay back the revolver, that the share price will continue to trade at today's levels. I'm not saying because I have a strong opinion on Vale share price. I'm just saying that all share prices, all equity prices across the world are affected by COVID-19, and Vale is no different. We will need to make that decision of dividends against buybacks once we see what the new normal level for the Vale share price will be after we repay the revolver. If you ask me what my bias is, obviously, the last time we did a buyback was at prices which were above today's prices.
A buyback option, if it was today, would be strongly considered as an additional option for capital allocation at today's share prices.
Great. Thank you, Luciano. Very clear.
Our next question comes from Alex Hacking, Citi.
Okay. Good morning. Well, I guess good afternoon in Rio, and thanks for the call. A couple of questions. Firstly, could you give us any update on how demand for iron ore is outside of China? I guess, in April, is it possible to quantify demand from Europe, Japan, Korea, elsewhere? That would be helpful. The second question, on your iron ore operations in Brazil, and operations in Brazil in general, how are the logistics there? I think you gave us an update about a month ago, Luciano, and you said there were some challenges, but things were basically going okay. Has it gotten, I guess, better or worse since then? Are there any concerns that you have around your ability to kind of keep the operations going in Brazil? Thank you very much.
Go ahead, Spinelli.
Thank you, Alex. Thank you for your question. Well, update about ex-China demand is a challenge. It depends on how will be the duration of the crisis. We have some theories about this. Europe, we see they were really fast to downstream and upstream decisions, shutting down operations. The main impact was the automotive production and also the steel. Different from the Middle East. Middle East, you have an additional crisis, is the oil crisis, the basis for the growth. We see they are struggling with the same problem with demand, but they're trying to keep the price, and they still have a break-even where they compare with the scrap. They compete with the process of production in Middle East. You see a problem different from Europe. In Japan, they are a little bit delayed comparing to Europe.
Now they are slowing down productions, automotive, even construction. We have some problems coming from steel. Now, how will be the crisis is the question. What we see that part of the demand or the supply will go to China, but even the supply is being affected in many regions in the world. You offset this extra iron ore that go to China. China is back. Regarding the iron ore operations, obviously we are learning with the COVID, actually. We've been doing a lot of effort for our social distancing. We reduce a lot of workers in our plants, almost a 60%, to guarantee that we have less people in the canteens or even inside the buses. We are scanning body temperature. We start now the test of our team and also contractors.
It is very important to understand that this is a daily process to control the absenteeism. We have a daily checklist that the people can define if they have any symptoms or if they have a problem. After that, we can track the people and put them in quarantine. The main thing here is to guarantee the health of our people and also the other people that had contact with the affected people. This is a daily process that we need to keep the operation. So far, we didn't have a logistics problem in our operations, but we are just in the middle of this crisis. We think that we are seeing that there will be the new normal.
We need to be good to guarantee that we have a great control and also using GPS technology to track people, to guarantee that they are healthy, and to keep the operation. This is the problem we are facing now.
Our next question comes from Timna Tanners, Bank of America Merrill Lynch.
Yeah. Hey, good afternoon, and thanks for the detail. Hope everyone's healthy. Wanted to follow up with Alex's question just to get a little more on the timing of the European recovery and how we think about the translation to pellet premiums. If you wouldn't mind giving us an update on the coal operations and your progress there and what governs the decision to stay offline and how that could proceed going forward. Thanks.
Hey, Timna. I'm going to answer your second question. I ask Spinelli to elaborate a little bit more about the recovery. About Moatize, we're still on track to do the plant overhaul at the plant. Because of the lockdown that happened in South Africa and Mozambique, we had to postpone. Due to that, we're going to have to reschedule. There's a good side on it because we can plan better, do it in a better way, but we don't know the timeframe for that. Unfortunately, that's the fact. By the way, Mozambique and coal is the operation that has been mostly hit by the COVID. On this example that I just mentioned about the intervention of maintenance, and secondly, about the demand. India is our main customer and was locked down as well. It created a problem. We were operating very well in March.
That creates an optimism about when we come back, we come back with the overhaul, with the improvements that we see. Of course, we need market as well. Anyhow, in a nutshell, I think Mozambique, we need to do the overhaul. We need to prove, we need to correct that asset, put to run at a 15 million ton rate, and then decide what we're going to do. Not the other way around. We're not going to discuss about selling JV, anything before we correct the asset. To correct the asset, we're going to need a window after COVID. For the European recovery, Spinelli.
Europe, I think is, as I mentioned, they are really fast to decide that. you see, we have many scenarios, Timna, to see this. Definitely, there will be a double-digit reduction. Depends on, again, the duration of the recovery. If you consider six months to go back and even not to the same level, it'll be something between 10% or even 30% of reduction of production this year. There are a lot of uncertainties. We are tracking some leading indicators. We have some information from satellite that we can see people now going back to auto factories, trying to reestablish. We see some announcements during May that some governments are returning to their operations. Again, there will be a new normal. The fact that there will be impact, definitely it will be double digit.
we need to track how it's going to happen, the evolve of the disease.
Timna, Luciano, just to complement on coal. It's disappointing that the month that we had a very good production, March, which was almost at an 11 million run rate, was followed by a month in which demand collapsed. in April, we're going to produce about 700,000 and maybe less in May, not because we're not able to produce, but because we don't have where to store more coal. We cannot sell coal into China because of specs of our coal. unfortunately, we have that situation. just to give you some color, because although the operations run really well, the next months are going to be severely impacted.
Hello? Hello, Cai?
The next question comes from Christian Georges, Société Générale.
For holding this call. The two questions, the first one on the pellets again. Assuming that we can see a relatively high risk that European demand is going to be seriously affected. Your Tubarão one and two were stopped in the first quarter. Would you be considering not restarting them in coming weeks? as a side question, also, does it make sense to maybe slow down the restart at Samarco, or are you waiting on Samarco as you were planning to in the first place? my second question is on the New Caledonia. I saw some headline that you may be finding a solution to divest the operation. Is this realistic, or is a closure a more likely outcome? Thank you.
Thank you, Christian. Let me begin with VNC, and then I'll pass to Mark to elaborate a little bit because I think we have some, by the way, follow-up what we said to you in the past, and good follow-up, by the way, because we're closing the refinery. I believe that we are on a good approach to exit the business healthily. I would ask Mark to answer, and then Spinelli could elaborate on pellets as well. Samarco, I can come back to that question as well.
Okay. Thanks, Christian, for the question. Eduardo's already addressed the closure of the refinery, which has progressed well, and we should see the last of the material running through the circuit in the coming days, by next week. That brings us to the exit strategy for Vale New Caledonia, which we announced back in December of 2019. As you'll recall from prior analyst calls, we mentioned that the process with Rothschild searching for an investor was progressing well. We did have non-binding offers received at the end of February. We are progressing fairly well with a couple of potential investors. Of course, the crisis did come in March, but we don't think that will impact the process too much. We have a good level of confidence that we should be finding a potential investor in the next month or two.
We would say that that's the route that's higher likelihood than a closure at this point in time.
Okay. What about pellets, Spinelli? I go back to Samarco.
Pellets? Okay. Christian, thank you for the question. Regarding the pellets, first, we decided to change the guidance from 44 to 35 to 40. This decision was related to the production side, the supply side. We are limited with pellet feed coming from Brucutu. You may saw that we are struggling with the return of the full operation in Brucutu, waiting for new assessment in the Laranjeiras dam. Now after COVID, we are checking if you have demand for those pellets. Again, the main thing is value over volume. We are not going to produce more than we need. Our natural market is Europe, JKT, and also Middle East. The problem now is a temporary problem. It's not related to price, but with the demand. We check this decision every day, actually.
We are flexible to shut down some plant, and sell directly pellet feed to China or even a blend in the BRBF. We are taking the decisions every day. If you don't have short-term demand, we can switch the program and keep the best margins.
Christian, about Samarco. I think Luciano is back, right? Luciano is our Samarco expert, the rhythm of ramp-up and the commitment to come back with Samarco is not changed. Okay. If you want to elaborate, Luciano, on Samarco, can you? I don't think Luciano is online, but I think just so answering your question, we're coming back on the. I think I'm out.
Our next question comes from Sylvain Brunet, Exane BNP Paribas.
I'm still on the move.
Hi, good afternoon. Two questions for me, please. First one on iron ore flows. Just if you could give us some indication, even in broad terms, on how much more business you did with China or Asia in general in April versus March, so we get a sense of your ability to address and redirect flows there. My second question is a bit more on the modeling side, maybe Luciano has a way to help us with some sensitivity around hedging. If there is any rule of thumb that would help us through the P&L with the impact of the realized. Thank you.
Okay, can take the first one. Well, China is back, actually. They are really putting a lot of effort, stimulus to put the economy back. We have many indicators. More than 90% of the infrastructure projects are back, and we have a very interesting information from corporate property. They sold more than 130% in April compared to March. The steel, we had a high record last week in sales, for rebar. China is trying to make the best effort to fight against the worst scenario that they face. We are sold out in China, actually. Since last year after Brumadinho, our market share, considering the whole sale, in Europe was lower level than in the past. Our exposure in that region, ex-China, wasn't really high. We don't have any problem to sell more products in China.
We need to remind, probably you remember the last call, we said that we still have to make a better inventory of BRBF for the blending. We sold almost the full stocks in the end of that year, last year, and now we are rebuilding the inventory. We have the inventory as a source of demand, but actually, we are selling the whole BRBF we have and also Carajás mines.
Okay. Luciano, before I answer to Sylvain, just back on Christian's question on Samarco. Hot commissioning will start in July. The filters are being installed, so we are on track for December, although we had a little bit of buffer, and we are eating up on this buffer. December 2020 is our best guess still for Samarco restart. On the hedge, as you saw, we had approximately $1.1 billion U.S. dollars exchange loss in the value of currency derivatives. This is an accounting economic loss because we do not pay this. Those derivatives, they match the profile of the debt. If the real stands where it is for the next seven to 10 years, that's how we are going to realize those losses in terms of a cash flow.
The slide I showed in my introduction shows that the value of the real denominated debt decreased by approximately $500 million U.S. Part of this hedge is actually the offset of the decrease in the real denominated debt value. In other words, when we took those liabilities, we immediately swapped them back into U.S. dollars because it was convenient at the time. It's a policy of ours to try to put its commitment as much as possible in U.S. dollars. The value of the debt declined by $500 million. We're losing $500 million out of the $1.1 billion in the derivatives. Still there's another $600 million of losses, and those $600 million, actually, they were entered into in order to hedge the commitments of Brumadinho, Renova, Refis, but only a partial hedge.
As you saw also on the slide that I showed, those other liabilities significantly decline in value in the Brazilian reals to the point that our expanded net debt, so to speak, the way we define the release, has decreased by more than $2 billion U.S. All in all, even in the balance sheet, the situation is extremely helpful and favorable for Vale, the devaluation of the Brazilian real. It happens that the only thing that flows through the balance sheet on all those things on Brazilian reals is the change in the value of the financial derivative, the derivative instrument. The other changes do not flow into the income statement because originally the income statement of Vale is prepared in Brazilian reals. In Brazilian reals, there's no change. There's no impact. It is only translated into U.S. dollars to show to you.
that's the logic behind the hedge. Thank you.
Our next question comes from Alfonso Salazar, Scotiabank.
Thank you. Most of my questions about iron ore have been answered, but I have one about the base metals division, and specifically nickel. You have been optimistic about demand increasing from electric vehicles revolution. With the auto industry facing very challenging times, probably things have changed, and investing in electric vehicles is not a priority at this point. If you can provide an update on the short-term and longer-term fundamentals for nickel in your view, and how you plan to adapt to market conditions so you can maximize the value of your nickel reserves. Perhaps you can leave out at this point the VNC, and focus on the other nickel assets that you operate. Thank you.
Thank you, Alfonso. I think you pointed out very clearly we are exiting VNC to focus on our world-class assets in both Canada and Indonesia. You also raised a very interesting point about the change in, how can I say that? Expectations about the electric vehicle. I believe this is a short-term problem, but I'll ask Mark to elaborate because I'm not running base metals anymore. Mark must have a more deep view on that. We're still positive on EV for sure.
Yeah, that's right, Eduardo. Thanks, Alfonso, for the question. I would echo what Eduardo just said, is that in the short term, there definitely is an impact. In particular, the EV market in China in the first two months, obviously, a significant drop. We don't see as much of an impact in Europe this year, but in terms of Vale exposure in the short term, it's not that significant, especially as we are excluding the VNC results from our guidance, et cetera. In fact, the product that we do sell from VNC into the market, the NHC nickel hydroxide cake, is actually doing fairly well, and we've had some good contracts recently. In the short term, it certainly is impacting the overall growth of the electric vehicle demand for nickel.
We will see a decreased demand overall in the market for that material, as we would see, we think, in the stainless steel market overall. Our overall view in the short term, including electric vehicles, is that we will move from what we expected to be a deficit this year to a surplus of nickel in the supply-demand equation. That said, we are a strong believer in the growth of electric vehicles in the coming years, and we remain committed to that.
Our next question comes from Andreas Bokkenheuser, UBS.
Thank you very much. Just one question from me, and I'm not sure whether that's one that's easy to answer, really. How do you think about your long-term break-even cost to China, given the new situation we're in? I can definitely see how your cash costs will come down when you ramp up volumes again, because it'll dilute the fixed cost base, and I can definitely also see how the current low oil price benefits you on the freight side. If we look beyond that, once you start putting more volumes back into the market and assuming that oil prices recover from here, I would expect freight rates to go back up again, and maybe even coupled with some BRL strength. Which I fear could end up offsetting some of the cost savings you would be getting by ramping up production.
When I look at your break-even cost to China, it's gone, including with sustaining CapEx and then pellet adjustment and so on. We've seen that break-even cost to China go from early $30s per ton to now basically $49 a ton. How do you think about that 49 going forward? Is that something we're going to see go back into the 30s? Are we going to stay in the 40s? Again, I realize here a lot of this is going to depend on freight rates and BRL and a bunch of other things that are very hard to look at. Just to get your broad view on it, where do you think we even out in the longer term here?
Okay, Andreas, that's a tough question, really. I'll ask Luciano to answer because it's so fluid. Everything is so correlated when you talk to oil or talk to iron ore price, and it's a very short-term problem, but I think we did some exercise as well here.
Yeah.
Andreas, the last time we had more stability in our production was in 2018, we were very firm, very close to $30 per ton all-in costs without sustaining capital. At the end of 2018, with the increase in premiums, we went actually below, we got to $28 per ton, and that would normalize higher oil prices, higher spot rates, and so on. At the time, we were discussing how we could do some internal self-help and work with digital transformation, with efficiency in order to try to get this down to 25. I would say that in a normalized situation, we would be naturally back to that $30 per ton, ex sustaining capital, perhaps a little lower, because at that time, S11D was not fully ramped up, and we would be in a more stable, steady state.
We would be targeting again goal and try to aim at $25 per ton. The logic of Vale pre-COVID-19, pre-Brumadinho, was pretty much like, okay, give me a $60 long-term iron ore price. I'm gonna shoot for $25 per ton, $35 margin times 400 million tons. It's a $14 billion business as the base load for the cash flow generation at Vale, and we also have the other businesses to improve and to fix. That was the long-term view, and I think we're gonna get back to pretty much something around this after everything normalizes.
Luciano, just to add another point. I think part of that is we're building the fleet of Valemaxes and Guaibamax, in the long term, we're gonna have the benefit of that. This is a long-term view to stabilize lower freight. Also, with the installation of the scrubbers, we can offset the impact of the low sulfur bunker. It's another component to guarantee that we are on the right track for the thirties.
This concludes today's question and answer session. Mr. Eduardo Bartolomeo, at this time, you may proceed with your closing statement.
Okay. Thank you. Thank you all for your questions and interest in our results. I would like to reinforce that we'll keep facing this unprecedented crisis with humbleness, responsibility, sense of urgency, and discipline. More importantly, with listening. I think it's the new way to see that value, and I would like to invite you to read our sustainability report. There's a lot there that could be shared with you that, of course, we don't have the time to do this call. Okay. Have a good day. Thank you all again, and see you in the next call.
That does conclude Vale's conference call for today. Thank you very much for your participation. You may now disconnect your line. Thank you.