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World's largest ore producer confident on China's demand
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BRAZILIAN mine company Vale SA, which has delivered 1.1 billion tons of iron ore to China since the arrival of the first cargo in Tianjin four decades ago, expects to use the next six years to sell the same volume.
That target underscores the world's largest ore producer's confidence that China's demand will remain strong enough to justify Vale's huge expansion plan despite a slowing economy and government efforts to tackle overcapacity in the steel industry.
"Cutting capacity doesn't mean cutting production," Jose Carlos Martins, executive director for ferrous and strategy, said in an interview Saturday in Shanghai. "Production in China will not decline but be more efficient."
Vale, which hasn't expanded its capacity over the past five years, is now seeking to boost annual capacity by 50 percent to 450 million tons by 2018 in a US$35 billion push.
Martins said Vale is confident additional ore output, of lower cost and higher quality, can be absorbed by the market, especially China. He also said new mines could replace depleted operations, trying to ease oversupply concerns.
Spot ore prices have fallen by nearly a third from a record high in 2011 amid slowing Chinese demand.
Also, Vale believes China eventually will allow its super large Valemax ships to call at Chinese ports, Chief Executive Murillo Ferreira said. Vale is building a fleet of Valemax, the world's biggest dry bulk vessels, to save fuel costs and better compete with Australian rivals. Vale's ore has to travel three times the distance as ore from Australia.
China last year banned ships as big as Valemax from docking after being lobbied by the Chinese Shipowners' Association, which cited the potential impact on loss-producing domestic shipping companies and safety problems.
The Chinese government "may need more time in order to understand the full benefit of Valemax," Ferreira said. "We respect the decision process of the Chinese authorities. We'll wait in order to go ahead."
A senior Chinese steel industry official said earlier this year the industry would support Valemax if it could lead to lower ore costs.
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