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Financial and capital risk management
 6 Months Ended
Jun. 30, 2023
Notes and other explanatory information [abstract]  
Financial and capital risk management

 

18.Financial and capital risk management

 

a) Effects of derivatives on the statement of financial position

 

 

   
  June 30, 2023 December 31, 2022
  Assets Liabilities Assets Liabilities
Foreign exchange and interest rate risk        
CDI & TJLP vs. US$ fixed and floating rate swap 90 30 11 144
IPCA swap - 41 - 63
Dollar swap and forward transactions 868 - 407 7
LIBOR swap 8 - 7 -
  966 71 425 214
Commodities price risk        
Gasoil, Brent and freight 70 71 78 56
Energy Transition Metals 45 - 35 1
  115 71 113 57
Other - 3 - 5
         
Total 1,081 145 538 276

 

b) Net exposure

 

     
  June 30, 2023 December 31, 2022
Foreign exchange and interest rate risk    
CDI & TJLP vs. US$ fixed and floating rate swap 60 (133)
IPCA swap (41) (63)
Dollar swap and forward transactions 868 400
LIBOR swap (i) 8 7
  895 211
Commodities price risk    
Gasoil, Brent and freight (1) 22
Energy Transition Metals 45 34
  44 56
     
Other (3) (5)
     
Total 936 262

 

(i) In March 2021, the UK Financial Conduct Authority (“FCA”), the financial regulator in the United Kingdom, announced the discontinuation of the LIBOR rate for all terms in pounds, euros, Swiss francs, yen and for terms of one week and two months in dollars at the end of December 2021 and the other terms at the end of June 2023. Vale has finalized the negotiations for the replacement of the reference interest rate of its financial contracts from LIBOR to Secured Overnight Financing Rate ("SOFR"), with spread adjustments to match the transaction costs. The Company does not expect material impacts on the cash flows of these operations.

 

c) Effects of derivatives on the income statement

 

 

         
         
  Gain (loss) recognized in the income statement
  Three-month period ended June 30, Six-month period ended June 30,
  2023 2022 2023 2022
Foreign exchange and interest rate risk        
CDI & TJLP vs. US$ fixed and floating rate swap 144 (121) 188 269
IPCA swap 23 (11) 30 66
Dollar swap and forward operations 376 (163) 538 198
LIBOR swap 2 7 5 42
Forwards 13 - 13 -
  558 (288) 774 575
         
Commodities price risk        
Gasoil, Brent and freight 4 10 (20) 25
Energy Transition Metals - 16 (1) 9
  4 26 (21) 34
         
Other 1 (8) 2 (18)
         
Total 563 (270) 755 591

 

d) Effects of derivatives on the cash flows

 

   
  Financial settlement inflows (outflows)
  Three-month period ended June 30, Six-month period ended June 30,
  2023 2022 2023 2022
Foreign exchange and interest rate risk        
CDI & TJLP vs. US$ fixed and floating rate swap (4) (17) (8) (43)
IPCA swap 2 8 3 11
Dollar swap and forward operations 98 54 118 84
LIBOR swap 4                                      -   4 (1)
Forwards 13 - 13 -
  113 45 130 51
Commodities price risk        
Gasoil, Brent and freight 1 6 3 9
Energy Transition Metals 20 (93) 39 (178)
  21 (87) 42 (169)
Total 134 (42) 172 (118)

 

e) Market risk - Foreign exchange and interest rates

 

Protection programs for the R$ denominated debt instruments and other liabilities

 

               
  Notional     Fair value Financial Settlement Inflows (Outflows) Value at Risk Fair value by year
Flow June 30, 2023 December 31, 2022 Index Average rate June 30, 2023 December 31, 2022 June 30, 2023 June 30, 2023 2023 2024 2025+
CDI vs. US$ fixed rate swap         88 (83) (7) 23 8 16 64
Receivable R$ 5,696 R$ 6,356 CDI 100.13%              
Payable US$ 1,320 US$ 1,475 Fix 1.77%              
                       
TJLP vs. US$ fixed rate swap         (28) (50) (1) 3 (1) (3) (24)
Receivable R$ 743 R$ 814 TJLP + 1.05%              
Payable US$ 186 US$ 204 Fix 3.45%              
                       
          60 (133) (8) 26 7 13 40
                       
IPCA swap vs. US$ fixed rate swap         (41) (63) 3 5 - (6) (35)
Receivable R$ 1,186 R$ 1,294 IPCA + 4.54%              
Payable US$ 293 US$ 320 Fix 3.88%              
                       
          (41) (63) 3 5 - (6) (35)
                       
R$ fixed rate vs. US$ fixed rate swap         791 318 43 64 265 291 235
Receivable R$ 19,307 R$ 20,854 Fix 7.61%              
Payable US$ 3,665 US$ 3,948 Fix 0.00%              
                       
Forward R$ 2,186 R$ 4,342 B 5.24 77 82 75 6 33 34 10
                       
          868 400 118 70 298 325 245

 

The sensitivity analysis of these derivative financial instruments is presented as follows:

 

 

         
Instrument Instrument's main risk events Fair value

Scenario I

(∆ of 25%)

Scenario II

(∆ of 50%)

CDI vs. US$ fixed rate swap R$ depreciation 88 (229) (546)
  US$ interest rate inside Brazil decrease 88 46 -
  Brazilian interest rate increase 88 56 24
Protected item: R$ denominated liabilities R$ depreciation n.a. - -
         
TJLP vs. US$ fixed rate swap R$ depreciation (28) (72) (116)
  US$ interest rate inside Brazil decrease (28) (33) (40)
  Brazilian interest rate increase (28) (36) (43)
  TJLP interest rate decrease (28) (34) (40)
Protected item: R$ denominated debt R$ depreciation n.a. - -
         
IPCA swap vs. US$ fixed rate swap R$ depreciation (41) (112) (183)
  US$ interest rate inside Brazil decrease (41) (50) (60)
  Brazilian interest rate increase (41) (54) (67)
  IPCA index decrease (41) (47) (53)
Protected item: R$ denominated debt R$ depreciation n.a. - -
         
R$ fixed rate vs. US$ fixed rate swap R$ depreciation 791 (57) (906)
  US$ interest rate inside Brazil decrease 791 728 663
  Brazilian interest rate increase 791 666 548
Protected item: R$ denominated debt R$ depreciation n.a. - -
         
Forward R$ depreciation 77 (8) (93)
  US$ interest rate inside Brazil decrease 77 73 68
  Brazilian interest rate increase 77 68 60
Protected item: R$ denominated liabilities R$ depreciation n.a. - -

 

Protection program for LIBOR floating interest rate US$ denominated debt

 

 

             
  Notional     Fair value Financial Settlement Inflows (Outflows) Value at Risk  Fair value by year
Flow June 30, 2023 December 31, 2022 Index Average rate June 30, 2023 December 31, 2022 June 30, 2023 June 30, 2023 2023 2024
LIBOR vs. US$ fixed rate swap          8  7  4  -     4  4
Receivable US$ 150 US$ 150 LIBOR 0.85%            
Payable US$ 150 US$ 150 Fix 0.85%            
           8  7  4  -     4  4

 

The sensitivity analysis of these derivative financial instruments is presented as follows:

 

 

                 
Instrument   Instrument's main risk events   Fair value  

Scenario I

(∆ of 25%)

  

Scenario II

(∆ of 50%)

LIBOR vs. US$ fixed rate swap   US$ LIBOR decrease   8   7   6
Protected item: LIBOR US$ indexed debt   US$ LIBOR decrease   n.a.   (7)   (6)

 

Protection for American treasury volatility related to tender offer transaction

 

To reduce the volatility of the premium paid to investors on the tender offer transaction issued in June 2023, treasury lock transactions were implemented and have already been settled as of June 30, 2023.

 

             
  Notional     Fair value Financial Settlement Inflows (Outflows) Value at Risk  Fair value by year
Flow June 30, 2023 December 31, 2022 Index Average rate June 30, 2023 December 31, 2022 June 30, 2023 June 30, 2023 2023
                   
Forwards - - B - - - 13 - -

 

f) Protection program for product prices and input costs

 

             
  Notional     Fair value Financial settlement Inflows (Outflows) Value at Risk Fair value by year
Flow June 30, 2023 December 31, 2022 Bought / Sold Average strike (US$) June 30, 2023 December 31, 2022 June 30, 2023 June 30, 2023 2023 2024
Brent crude oil (bbl)                    
Call options 31,139,250 22,600,500 B 95 68 74 - 15 6 62
Put options 31,139,250 22,600,500 S 62 (71) (51) - 16 (23) (48)
                     
Forward Freight Agreement (days)                    
Freight forwards 960 2,085 B 13,791 2 (1) 3 1 2 -
                     
          (1) 22 3 32 (15) 14

 

The sensitivity analysis of these derivative financial instruments is presented as follows:

 

         
Instrument Instrument's main risk events Fair value

Scenario I

(∆ of 25%)

Scenario II

(∆ of 50%)

Brent crude oil (bbl)        
Options Price input decrease (3) (288) (759)
Protected item: Part of costs linked to fuel oil prices Price input decrease n.a. 288 759
         
Forward Freight Agreement (days)        
Forwards Freight price decrease 2 (2) (5)
Protected item: Part of costs linked to maritime freight prices Freight price decrease n.a. 2 5

 

g) Other derivatives, including embedded derivatives in contracts

 

               
  Notional     Fair value Financial settlement Inflows (Outflows) Value at Risk Fair value by year
Flow June 30, 2023 December 31, 2022 Bought / Sold Average strike (US$/ton) June 30, 2023 December 31, 2022 June 30, 2023 June 30, 2023 2023+
Fixed price nickel sales protection (ton)                  
Nickel forwards 2,580 766 B 20,842 - 7 3 3 -
                   

Hedge program for products acquisition

for resale (ton)

                  
Nickel forwards - 384 S - - (1) 2 - -
                   
          - 6 5 3 -
                   

Embedded derivative (pellet price) in

natural gas purchase (volume/month)

                  
Call options 746,667 746,667 S 233 (3) (5) - 2 (3)
                   
          (3) (5) - 2 (3)

 

The sensitivity analysis of these derivative financial instruments is presented as follows:

 

         
Instrument Instrument's main risk events Fair value

Scenario I

(∆ of 25%)

Scenario II

(∆ of 50%)

Fixed price sales protection (ton)        
Forwards Nickel price decrease - (14) (27)
Protected item: Part of nickel revenues with fixed prices Nickel price decrease - 14 27
         
Hedge program for products acquisition for resale (ton)        
Forwards Nickel price increase - - -
Protected item: Part of revenues from products for resale Nickel price increase - - -
         

Embedded derivative (pellet price) in natural gas purchase

agreement (volume/month)

        
Embedded derivatives - Gas purchase Pellet price increase (3) (8) (16)
         

 

h) Hedge accounting

 

 

       
   
  Gain (loss) recognized in the other comprehensive income
  Three-month period ended June 30, Six-month period ended June 30,
  2023 2022 2023 2022
Net investments hedge 96 (145) 145 74
Cash flow hedge (5) 312 14 8

 

Cash flow hedge

 

               
  Notional (ton)     Fair value Financial settlement Inflows (Outflows) Value at Risk Fair value by year
Flow June 30, 2023 December 31, 2022 Bought / Sold Average strike (US$/ton) June 30, 2023 December 31, 2022 June 30, 2023 June 30, 2023 2023
Nickel revenue hedge program                  
Forward (3,150) 6,300 S 34,929 45 28 34 4 45
          45 28 34 4 45

 

The sensitivity analysis of these derivative financial instruments is presented as follows:

 

 

         
Instrument Instrument's main risk events Fair value

Scenario I

(∆ of 25%)

Scenario II

(∆ of 50%)

Nickel Revenue Hedging Program        
Forward Nickel price increase 45 29 13
Protected item: Part of nickel revenues with fixed sales prices Nickel price increase n.a. (29) (13)

 

i) Financial counterparties’ ratings

 

The transactions of derivative instruments, cash and cash equivalents as well as short-term investments are held with financial institutions whose exposure limits are periodically reviewed and approved by the delegated authority. The financial institutions credit risk is performed through a methodology that considers, among other information, ratings provided by international rating agencies. 

The table below presents the ratings in foreign currency as published by Moody’s regarding the main financial institutions used by the Company to contract derivative instruments, cash and cash equivalents transaction.

 

     
  June 30, 2023 December 31, 2022
  Cash and cash equivalents and investment Derivatives Cash and cash equivalents and investment Derivatives
Aa1 36 - 32 -
Aa2 726 - 342 5
Aa3 190 - 239 -
A1 1,602  139 1,746  97
A2 736  296 938  145
A3 713  52 918  62
Baa1 -  -    -  -   
Baa2 51  -    7  -   
Ba2 (i) 798  426 411  174
Ba3 (i) 177  168 164  54
  5,029 1,081 4,797 538

 

(i) A substantial part of the balances is held with financial institutions in Brazil and, in local currency, they are deemed investment grade.