Vale triggers mother of all IO Rallies !, page-2

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waldo1

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01/05/15

09:09

Post #: 15195725
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Originally posted by Matt747 ↑

Vale's slower growth to trigger iron ore rally
by Peter Ker

The world's biggest iron ore miner, Vale of Brazil, says it is willing to temporarily slow exports of the bulk commodity, in comments that Morgans analyst Adrian Prendergast believes could "trigger a strong rally in spot iron ore prices".

Vale's head of ferrous and strategy, Peter Poppinga, said overnight the company would not relent from spending close to $US17 billion ($21.5 billion) on iron ore expansion projects, but said it would be prepared to withhold about 30 million tonnes from its higher-cost mines if the weak market persisted.

"We are optimising our production mix and this is an ongoing endeavour to improve our margins," Mr Poppinga said.

"Depending on the market, we will be prepared to reduce our production by 30 million tonnes. This does not mean necessarily closing down mines, we are just optimising production flows.

"Some mines have processing plants that we can perhaps stop for a while. So in a nutshell, we are not prepared to reduce overall capacity but rather reduce production temporarily."

The news comes on the back of a war of words erupting between Rio Tinto and Fortescue chief Andrew Forrest on Thursday.

Rival miners, including outspoken US miner Cliffs, have said Vale can no longer afford its huge capital spending plans given depressed iron ore prices.

Mr Poppinga dismissed those claims saying the expansion plans were a big part of the company's future.
"The S11D mine in Carajas is our future and it is for the future of Brazil as well," he said.

Mr Poppinga hinted that any such reductions would be temporary and opportunistic, and Vale would increasingly be focused on profit margins rather than volume growth.

Mr Prendergast said the comments were "significant", particularly in light of BHP's decision last week to defer spending on its iron ore expansions in Western Australia.

"Catching the market by surprise, we expect the announcement is likely to be a further positive catalyst for spot iron ore prices. Particularly given the market's strong reaction last week to BHP's slowing of 20mt of medium-term growth," he said.

"Vale's announcement is likely to trigger support for the iron ore price. We are keen to see how the iron ore price reacts to Vale's announcement. But expect it may trigger buying support for FMG, RIO and BHP."

Just like Rio Tinto, Fortescue Metals Group, Arrium Limited and Grange Resources, Vale's production and exports of iron ore were lower in the March quarter than the December quarter, further turning the spotlight on Chinese demand as a big factor in the 28 per cent slide in iron ore prices during the first three months of 2015.

Mr Prendergast estimated Vale had a break-even price of $US45 per tonne during the March quarter, and would only reduce that by $US2 per tonne during 2015. Iron ore for shipment to the Chinese port of Qinqdao last traded down 1.7 per cent at $US56.18 a tonne.

Cliffs chief executive Lourenco Goncalves said earlier this week that shipping iron ore from Australia to China was a "doomed, horrible business" and that Cliffs couldn't wait to finish mining in Western Australia.

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Can Barnett write to Lorenco and ask him to pay back all the profits his company has made in WA and then tell him to PO?

FMG Price at posting: $2.17 Sentiment: None Disclosure: Not Held
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