Vale to divide and conquer by lifting high-grade iron ore output

Vale is keen to build up its supply of higher-quality iron ore in a move that could increase pressure on some rival producers in the global market for the steelmaking commodity.

The Brazilian miner is one of a quartet of companies that dominate the global market in iron ore, where prices have plummeted over the past year as a glut of supply - mainly from Australian producers - has encountered weakening Chinese demand.

Vale's recent indications that it would be prepared to hold back some supply have helped to arrest the slide in the iron ore price, while underpinning a rally in the company's shares in the past month.

In an interview Luciano Siani, chief financial officer, did not rule out Vale cutting its growth plans for next year. The miner expects to produce 340m tonnes of iron ore this year and has previously estimated that 2016 output will be 376m tonnes.

However, Mr Siani said Vale would be likely to "push to the fullest" its production of the highest grade of iron ore, which commands a premium price from steelmakers. By contrast Vale would be more likely to "manage" its more "standard" iron ore supplies, he said.

"Maybe we will have several stories unfolding [in the iron ore market]," Mr Siani said. "We believe that the products will behave differently according to the segment."

Vale's plans for iron ore are important because a number of smaller companies are under severe financial stress and some have already been forced out of the market. The largest suppliers - Vale, Rio Tinto and BHP Billiton - are the lowest-cost global producers and expect to withstand a period of lower prices.

"The new normal is lower prices, there is no doubt about it," Mr Siani said.

Vale acknowledges that the average quality of its iron ore has declined in recent years. Defying the weakening market, it has pressed ahead with developing a high-grade, low-cost mine in Brazil known as S11D, due for completion towards the end of next year.

Among Vale's rivals, Australia's Fortescue Metals Group is most reliant on lower-grade ore. Many smaller companies also depend more on lower grades.

"We are seeing . . . the early days of a segmentation in the market," Mr Siani told the Financial Times. "We have a lot of oversupply of more standard ore . . . but we are seeing very robust premiums for high quality ore."

Mr Siani also said Vale was still minded to carry out an initial public offering of its base metals - copper and nickel - division and was not considering other divestment options.

"If you have a market window for nickel and for copper, which we believe there will be, then maybe Vale will go to the market in the first half of next year - but naturally this is a decision that needs to be made together with the board of shareholders," Mr Siani said. "These are assets that we believe we run better than anyone else. We do not see the need for doing a deal with anyone else."

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation