drop in io demand is good for umc, page-15

Clients want iron ore delays, not price drops: Vale

John Kolodziejski | November 04, 2008

BRAZILIAN mining giant Vale said it will not reduce the price of its iron ore to push sales volumes higher.

“Price isn’t the problem. Clients aren’t asking for discounts, they’re asking for delays in shipments,” Vale's chief executive Roger Agnelli said in a presentation overnight.

According to Mr Agnelli, the volumes of iron ore stocks in Australia and Brazil have dropped dramatically, and this is worrying.

“If possible, we need to build our inventory. Our ports are completely empty and we need to have 3 million to 4 million tonnes at each port,” Mr Agnelli said.

He added that the heated demand before the onset of the economic crisis was unsustainable.

“I thought it wasn’t possible to produce at 110 per cent to 115 per cent nominal capacity, delaying maintenance, etc.," Mr Agnelli said.

“I also thought the $US55,000-a-tonne nickel price last year was not sustainable, likewise the heavy investment by hedge funds in commodities.”

Mr Agnelli said Vale needed to be flexible and, at the moment, it was best to act calmly.

“All our options are open, investments, acquisitions. We’ll be in this position for one or two months,” the chief executive said.

“We face one simple reality: the market reality.”

When asked whether now was the best time to make an acquisition, given depreciated stock prices, Mr Agnelli said” “The best accusation we can make is buying back our shares. We’re in good shape, I don’t know about the other companies. Our investments (in Vale) bring in more shareholder value than acquisitions. Our projects bring in a higher return.”

Mr Agnelli conceded that any acquisition could be considered if it consolidated Vale operations, such as in the coal sector.

Furthermore, he said recent production cuts were a response to market conditions. He cited the announced suspension of alumina output at the company’s Valesul unit in Rio de Janeiro.

“We felt Valesul was about to lose money in one or two months, so we closed it down,” he said.

Vale recently cut its iron ore output by 30 million tonnes a year, suspended ferroalloy and alumina production in some of its units, and also reduced nickel output.

“There’s no market for manganese and nickel. Some are selling nickel at $US8,000 a tonne. We don’t need to sell. We’re cutting costs and keeping cash,” Mr Agnelli said.

“We have a lot of cash right now, and we need to wait a little bit. In late January, we will have a clearer idea of the (market) situation.”

In addition, Mr Agnelli continued to express optimism about future prospects.

“China in the long and medium term is good, as are the prospects for Latin America and Brazil,” he said.

He dismissed “as gossip” press reports of conflict with Chinese steel mills. In fact, he said: “We’re very close to our (Chinese) clients.”

Mr Agnelli said the downturn in iron ore demand would mean that 50 per cent of producers would be out of the market.

“The next two to three months will clarify who is in the market and who is out.”

Dow Jones Newswires