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Brazil's Vale sees metals markets rebound in 2009

Brazil's Vale sees metals markets rebound in 2009

Rio De Janerio: Brazilian miner Vale the world's largest iron ore producer has said it expected metals markets to continue recovering as the world economy emerges from the financial crisis, writes Reuters. Vale on Wednesday posted an 84% year-on-year drop in second-quarter earnings caused by the tumble in iron ore prices from their peak at the height of the commodities boom and production cuts to adjust for collapsing demand.

"Global industrial production has started to recover, that's clear, and our business is deeply connected to industrial production," Vale cfo Fabio Barbosa said in an investor conference call. "There is a clear convergence toward better performance in the second half 2009."

Barbosa and other company officials on the call pointed to iron ore spot market prices in China, which are now above $90 per tonne, and demand recovery for both non-ferrous metals, such as nickel, as well as stainless steel as signs of improvement.

The officials did not provide specific guidance on possible ore prices later this year or how much Vale's production could increase following earlier moves to idle capacity.

Ferrous Minerals Director Jose Carlos Martins said Vale is now selling around 70% of its ore to China on a cost and freight basis, meaning the sender covers shipping, in efforts to ensure space in the growing Chinese market. Previously Vale had said it sold only free on board, or FOB, in which the buyer paid the shipping costs.

When markets collapsed after the economic crisis Vale had to change its usual procedure of waiting for Asian clients to pick up ore in Brazil and began building up its own fleet as shipping rates rose to almost $40 per tonne, Martins said later in a press conference.

With the soaring spot market price of ore in China, Asian clients are again sending ships to pick up ore on an FOB basis -- but Martins said the company was now much less dependent on spot market shipping rates.

The spot price for Vale's ore in China is now above the benchmark sale price agreed on last year, he said. When asked about talks with China, Martins said Vale was waiting for Australia's BHP Billiton and Rio Tinto to complete negotiations before closing a deal with Chinese mills.

Martins said Vale believes the benchmark has already been set through agreements between major miners and other Asian clients to cut prices between 28 and 33% for iron ore. "The Chinese are accepting neither 33% nor 28%," said Martins.

China recently detained executives from Rio Tinto on charges of espionage, adding additional tensions to talks with the two Australian giants.  [31/07/09]

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