Bloomberg News

Vale Seeks Two U.S. Pellets Supply Contracts as Shale Gas Booms

December 18, 2013

Vale SA (VALE:US), the world’s largest iron-ore exporter, expects next year to sign pellet supply contracts in the U.S. as a shale gas boom provides an opportunity to tap a market that represents less than 1 percent of shipments.

The company, based in Rio de Janeiro, is in talks with investors of two U.S. steel plant projects including Voestalpine AG to supply the processed form of iron-ore, Vale Chief Executive Officer Murilo Ferreira said today. Samarco Mineracao SA, a pellet producer that Vale controls with BHP Billiton Ltd., earlier this year signed a supply accord with Nucor Corp. (NUE:US), the largest U.S. steelmaker by market value, he said.

“We are in one of the three projects through Samarco and we think we will become suppliers of the other two,” Ferreira told reporters during a lunch at company offices in Rio. “There is an unexpected window of opportunity being opened now, which is the U.S. industry revival based on shale gas.”

Vale plans to spend $34 billion on its approved iron-ore mining and logistics projects to boost output capacity by 50 percent to 450 million metric tons by 2018 as it seeks to recover market share lost to Australian rivals. The company shipped 188,000 tons of iron-ore and pellets to U.S. customers during the third quarter, or 0.2 percent of its total volume sold, it said Nov. 6.

Restarting Plants?

Vale, which last year shut three pellet feed plants in Brazil because of lower demand from steelmakers, could eventually consider restarting the facilities to supply the U.S. market, Ferreira said.

“We can reconnect, we have all the flexibility,” he said. “The U.S market will start to be relevant to Vale for the first time in its history because shale gas needs iron ore and pellets.”

The U.S. shale gas revolution is attracting a wave of investment in the steel industry, with plants under consideration or being built that would use gas instead of coal to purify iron ore, the main ingredient in steel.

Hydraulic fracturing of shale rock formations from Texas to West Virginia has boosted suppllies of gas and sent prices plunging, cutting costs for industrial users. Gas futures reached a decade low of $1.91 per million British thermal units in April 2012 in New York trading.

Samarco, based in Belo Horizonte, Brazil, said in a statement the company doesn’t comment on its contracts. Nucor and Linz, Austria-based Voestalpine didn’t immediately reply to e-mails seeking comment.

Vale rose 0.5 percent to 31.89 reais in Sao Paulo today, the first gain in seven trading days on a closing basis. The stock lost 22 percent this year.

To contact the reporter on this story: Juan Pablo Spinetto in Rio de Janeiro at jspinetto@bloomberg.net

To contact the editor responsible for this story: James Attwood at jattwood3@bloomberg.net


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Companies Mentioned

  • VALE
    (Vale SA)
    • $9.4 USD
    • 0.04
    • 0.43%
  • NUE
    (Nucor Corp)
    • $54.65 USD
    • 0.74
    • 1.35%
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