Bloomberg News

Vale Cuts 2015 Iron-Ore Output Target Amid China Demand

June 27, 2011

(Updates with iron ore plans in 10th paragraph.)

June 27 (Bloomberg) -- Vale SA, the world’s largest iron- ore miner, cut its target for 2015 output by 10 percent.

The Rio de Janeiro-based company expects to produce 469 million metric tons a year of the steelmaking ingredient by that time, compared with an Oct. 28 forecast of 522 million tons, it said today in an e-mailed statement. No more details were given.

Chief Executive Officer Murilo Ferreira, who replaced Roger Agnelli this year after the Brazilian government criticized Vale’s strategy, is cutting targets amid concern raw materials demand in China will slow as the country boosts interest rates to combat quickening inflation. The benchmark Standard & Poor’s GSCI commodity index is heading for a second monthly drop.

“They were being a bit optimistic about the 2015 target,” Leonardo Alves, an analyst at Link Investimentos, said today by telephone from Sao Paulo. He rates the stock “outperform.”

Vale produced 71.5 million metric tons of iron ore in the first quarter, up 3.6 percent from a year ago, it said May 6.

The company is seeking to boost output from about 308 million tons a year now to meet rising demand from steelmakers in Asia, where the company is competing with rivals BHP Billiton Ltd. and Rio Tinto Group. The company is buying ships in China and also setting up distribution centers in the region

Vale fell 15 centavos, or 0.3 percent, to 43.95 reais as of 2:49 p.m. in Sao Paulo and has declined about 9.4 percent this year, compared with a 12 percent drop for the Bovespa Index.

Year-End Investments

Total year-end investments may be about $20 billion, less than the $24 billion included in the company’s budget, Chief Financial Officer Guilherme Cavalcanti said May 6 on a conference call with analysts. The company, which is delaying the start of four projects, faces equipment, workforce and licensing “constraints,” he said. Chief Executive Ferreira has said that the current $24 billion budget remains.

Steel demand in China, the world’s biggest consumer, may rise by as much as a quarter by 2015 from last year, according to a projection from the China Iron & Steel Association, which represents producers.

Vale plans to boost iron ore output by 1 percent to 311 million tons this year. It will invest $2.9 billion to expand iron ore capacity at the Carajas mine, the world’s largest, and to improve logistics to its port terminal at the Port of Ponta da Madeira, in Maranhao, Brazil. It will also invest $861 million in 2011 to start producing iron ore and rebuild a railway for its Simandou project in Guinea, and $681 million to boost copper output at its Salobo mines in Para state, Brazil.

--Editors: Dale Crofts, Jessica Brice

To contact the reporter on this story: Lucia Kassai in Sao Paulo at lkassai@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net


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