Bloomberg News

Vale Says It Wants to Continue With Benchmark System

November 14, 2008

Cia. Vale do Rio Doce Chief Financial Officer Fabio Barbosa said the company will continue with the benchmark system of annual iron-ore price negotiations ``so long as our clients continue to support it.''

``The benchmark system is a superior system for suppliers and for customers,'' Barbosa told analysts and investors today at a meeting at the London Stock Exchange. ``We continue to support it even though some of our competitors don't support it.''

Still, some of Vale's clients have been unable to accept all the shipments of iron ore, a key steelmaking ingredient, that were negotiated in existing yearly supply contracts, Rio de Janeiro-based Vale said in a statement Nov. 11. Customers will be allowed to change the terms of their contracts based on their needs, Vale said.

``We are discussing contracts,'' Barbosa said. While Vale doesn't expect further deterioration of the markets that it serves, ``China demand for iron ore faced a very unfortunate combination of credit-tightening and natural accidents including an earthquake,'' he said.

China's $586 billion investment plan, aimed at easing a slowdown in the economy, ``recharges expectations'' for metals demand, said Barbosa, whose comments were broadcast on the company's Web site.

Last month China's Iron and Steel Association said its members support a quarterly, rather than annual, price- negotiation system because of market volatility.

Vale's current renegotiation with customers including ArcelorMittal, the world's largest steelmaker, indicates a price negotiation every three months may now be ``more suitable for market needs,'' Jayme Alves, an analyst with Sao Paulo-based broker Spinelli SA, said in a telephone interview. ``The crisis has taken away the steel sector's ability to forecast.''

To contact the reporter on this story: Diana Kinch in Rio de Janeiro dkinch1@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net


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