In Commodity News 01/05/2015
Brazil’s Vale SA said it could reduce forecasted iron ore production by up to 30 million tonnes over the next two years, as the miner tries to resuscitate margins in the midst of a severe price slump.
In a major strategy shift following Vale’s third quarterly loss in a row, executives said they would focus on improving margins over increasing volumes.
An increase in capacity “enables us to close higher-cost and lower-quality production if necessary,” Vale’s Head of Ferrous Peter Poppinga said on a conference call. “The capacity will be there, 450 million tonnes, and we are going to use it according to market conditions.”
Any move to curb output growth by the world’s largest producer of iron ore will be closely watched by a market currently in oversupply due to new capacity from Australia and Brazil combined with slower demand growth in China.
The comments come just a week after Australian rival BHP Billiton said it would delay a 20 million tonne expansion project. BHP was the first of the so-called “big three” iron ore miners, including Vale and Rio Tinto, to cut production forecasts.
Up until now, the likes of Vale and BHP have said their strategy was to win greater market share by driving higher cost producers out of the market. However, it appears the strategy has put their own output at risk. The glut, as well as expectations it could get worse, has caused the price of iron ore to fall 47 percent over the past 12 months.
Vale said the 30 million tonnes, if they were cut, would be substituted by newer, cheaper production from expansion projects. It is in addition to 22 million tonnes of older production which Vale is already substituting this year.
“If the market demands, we are prepared to reduce production from the south and southeast system,” Poppinga said, referring to the company’s mines in the Brazilian state of Minas Gerais.
Vale said the production forecast for this year of 340 million tonnes could be adjusted, as well as the forecasted increase to 376 million tonnes in 2016. The company is the process of ramping up multiple projects with the previously stated goal of reaching 453 million tonnes by 2018.
