Wednesday 6 July 2011

Vale Has No Concern Iron-Ore Demand in China May Slow, CFO Cavalcanti Says

http://www.bloomberg.com/news/2011-07-05/vale-says-company-not-concerned-about-china-slowdown-correct-.html

Vale SA (VALE3), the world’s largest iron-ore producer, sees no slowdown in demand from China as the country seeks to build 36 million low-income houses in the next five years, Chief Financial Officer Guilherme Cavalcanti said.

The country will continue leading global consumption of the steelmaking raw material as it invests in new dwellings and infrastructure, Cavalcanti said on Bloomberg Television’s “The Pulse with Maryam Nemazee” today in London. Difficulties in bringing new projects to the production stage will cause a demand-supply imbalance lasting six or seven years, he said.

“We aren’t feeling any contraction in demand for iron ore mainly because infrastructure building is still going on in there and also social housing,” Cavalcanti said. “The urbanization process in China is far from over, so we think that these will keep leading the demand for iron ore.”

China’s factory index fell to the lowest level since February 2009 last week, adding to concerns that
12 reserve-requirement increases and four interest-rate increases since the start of last year are curbing growth in the world’s second-biggest economy. Vale shipped about 41 percent of its total iron ore and pellets sales to China in the first-quarter.

The dollar today rallied versus the euro, snapping a six-day drop, on speculation China’s efforts to tame inflation will cool growth and damp demand for riskier assets. The U.S. currency climbed against 14 of its 16 major peers after the Beijing-based Economic Information Daily said China is likely to raise interest rates this weekend.

Market Tightness

“The tightness of the market, because of the difficulties in many companies to deliver the projects to put supply on, will probably leave the market imbalanced for six to seven years,”Cavalcanti, 42, said.
Vale last week cut its long-term iron-ore output forecast by about 10 percent to 469 million metric tons by 2015. The company said earlier this year that it delayed the start of four projects for as many as two years amid equipment, workforce and licensing constraints.

“Because of the delays that we have, we revised the figure for 2015,” Cavalcanti said today, adding that Vale is maintaining this year’s target at 311 million metric tons.

No ‘Bidding War’

Prices for iron ore delivered to China, the largest user, jumped 27 percent in the past year and have more than doubled since 2009. The price of ore with 62 percent iron content delivered to the Chinese port of Tianjin gained 0.2 percent to $168.5 a metric ton today, according to the Steel Business

Briefing Commodities Research.
Vale, which is aiming to boost copper output almost fivefold to 1 million metric tons by 2015, in April bid $1.1 billion bid for Johannesburg-based Metorex Ltd. (MTX) Jinchuan Group Co., the biggest Chinese nickel producer, today offered 8.90 rand a share for the company, trumping Vale’s 7.35 rand a share offer.

“We aren’t concerned about the bidding war because we have our limit on price,” Cavalcanti said. “And we will not go to a bidding war.”

“We already are leaders in iron-ore, we are the second largest in nickel and we really want to increase in copper, coal and fertilizers,” Cavalcanti said during the interview. “The focus in terms of regions in the world would be Africa andIndonesia because there are places where you can still find high grades
in unexplored mines,” he said.

Vale will only issue bonds this year if there is a “market window with very good rates” as the company currently doesn’t need the funding, Cavalcanti said. “At the moment I have no plans,” he said.

Vale fell 72 centavos, or 1.5 percent, to 46.33 reais in Sao Paulo trading. The stock has dropped about 4 percent this year, less than the 9 percent decline in Brazil’s benchmark Bovespa Index.

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