Vale Eyes Markets Beyond China Amid Iron Price Power Battle
(Bloomberg) -- Vale SA is turning to new markets to diversify iron ore sales as the industry’s top customer China steps up efforts to influence prices of the steelmaking staple.
While China still accounts for about half of Vale’s iron shipments, the company is now selling to India and Vietnam and is exploring other markets in Southeast Asia and the Middle East, Chief Executive Officer Gustavo Pimenta said in an interview.
It’s a natural pivot from Vale’s longstanding reliance on China as other emerging markets look to bolster their steel industries and Beijing focuses more on domestic consumption and technology.
Asked about the implications of a breakdown in contract negotiations between China and another top producer, BHP Group, Pimenta said neither sellers nor buyers are in a position to control prices in the current iron environment.
“When the market is not balanced, then yes, one side can gain more bargaining power,” he said from the company’s Rio de Janeiro headquarters. “But in this case, it’s balanced — and all the major miners understand that their products hold real value for the end customer.”
With Chinese steel production set to remain around 1 billion metric tons a year until the end of the decade, Vale wants to grow “significantly” in India, from current levels of about 10 million tons, he said. The Brazilian company is also considering developing blending plants or partnering with locals in India.
Over the next decade, the market probably will remain balanced despite the massive Simandou complex in Guinea coming onstream, Pimenta said. That’s based on annual depletion of 50 million to 60 million tons, with another 150 million tons becoming unfeasible if prices go below $90 a ton versus about $100 now.
While ownership of Simandou includes Chinese companies, as well as Rio Tinto Group, Vale’s CEO doesn’t see it as a game changer for Beijing’s pricing power.
State-run trader, China Mineral Resources Group Co., has become the world’s biggest buyer of iron ore, with a mandate to shift the balance in talks with Vale and its Australian producers BHP and Rio Tinto. CMRG has told major mills and traders to avoid taking new dollar-denominated seaborne cargoes from BHP after contract talks stalled.
“Simandou will certainly become an important source of supply for the Chinese market, but China’s demand for iron ore is far greater than the volume it will be able to provide,” Pimenta said.
Vale is engaged in talks that are “strictly” about volumes for next year with CMRG and steel mills, he said.
Just after Pimenta took the helm around a year ago, Vale finally reached a settlement for a 2015 mining disaster. The former finance boss was tasked with maximizing iron ore output and boosting efficiencies despite China’s weakening appetite for the steelmaking ingredient. The company wants to be the top provider of high-quality ore that minimizes emissions at mills.
Pimenta expects Vale to regain the title of world No. 1 iron ore producer as soon as this year after a gradual recovery from disruptions generated by tailings dam disasters. The official guidance for next year is 340 million to 360 million tons, although that may be updated at a London investor day next month. Pimenta said Vale won’t exceed the top end of the existing range.
The company also wants to double copper production capacity to 700,000 tons by 2035. The focus is developing Vale’s own assets, mainly in Brazil’s Amazon rainforest, as opposed to deal making.
“If you want to make an acquisition, you’ll have to pay a high price because everyone wants copper,” he said. “It’s clear that we can create much more value by advancing Vale’s own portfolio.”
Singapore iron ore futures fell 0.4% to $101.75 a ton at 10:54 a.m. local time, while yuan-price futures on the Dalian exchange were down 0.3%. Steel futures contracts on the Shanghai exchange declined.
(Updates with iron ore prices in final paragraph.)
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