Oct. 31 (Bloomberg) -- Cia. Vale do Rio Doce, the world's biggest iron-ore producer and second-largest nickel supplier, will lower output because the global credit crisis curbed metal demand.

The cutbacks that start tomorrow will affect ferro alloys, manganese ore, iron-ore pellets and aluminum, Rio de Janeiro- based Vale said today in a regulatory filing. Vale reiterated an Oct. 24 plan to reduce iron-ore production by 30 million metric tons and cut nickel output in Indonesia by 20 percent, citing a 20 percent decline in global steel industry output.

The deepening economic crisis, spurred by tight credit markets, is forcing commodity producers including steelmakers, pulp mills and mines to cut back, since demand for raw materials is expected to slow, said Pedro Galdi, a steel and mining analyst in Sao Paulo at SLW Corretora de Valores e Cambio Ltda.

``Vale will have a much weaker financial result in the fourth quarter and probably in the first quarter of 2009,'' Galdi said today in an interview. ``Until global access to credit returns to normal, the company will feel the effects.''

Vale's profits may suffer, according to Banco UBS Pactual SA, a Rio de Janeiro-based unit of UBS AG. In a report today, the bank estimated Vale's 2009 net income will be $10.9 billion, down 19 percent from $13.4 billion projected earlier, on expectations that iron-ore prices may drop 40 percent next year. UBS also estimated 2010 net income of $10.9 billion, down 5 percent from a previous forecast.

Intense Crisis

Chief Executive Officer Roger Agnelli said Vale is the Brazilian company that is most exposed to world markets and that the global crisis will be ``intense'' for another three to four months. Speaking with reporters in Rio today, he said financial markets probably will rebound in next year's second quarter.

``There are people that think the crisis will last two years,'' Agnelli said. ``I'm a bit more optimistic.''

Vale's steps to reduce output are temporary, Agnelli said. He said commodities are currently at ``bargain prices'' because trading companies are pressed to sell to raise cash.

Vale's production of manganese ore and ferro alloys will be halted in Brazil from December to January, the company said in the regulatory filing. Two pellet plants in Brazil that represent about 20 percent of Vale's capacity will be closed for maintenance starting tomorrow, Vale said. The company also plans to provide paid leave to affected workers in Minas Gerais state.

Europe, Indonesia, China

Vale will close a ferro-alloy plant in France until April and will shut the Mo I Rana plant in Norway until June to repair a furnace. Output of manganese ore will be cut by 600,000 metric tons and ferro-alloy production will be reduced by 90,000 tons, Vale said in the filing.

In Indonesia, the company will stop using a thermoelectric plant, cutting nickel production by about 17,000 tons. A nickel refinery in Dalian, China, will operate at 35 percent of its normal capacity of 60,000 tons per year, the company said.

Vale said it will reduce activities at its Valesul Aluminio SA aluminum unit in Santa Cruz, Rio de Janeiro state, because of high costs. The company said the plant will operate at 40 percent of normal annual capacity of 95,000 tons.

Agnelli said Valesul isn't ``viable'' at current aluminum prices and that Vale is assessing what to do with it.

Vale dropped for the first day in four, declining 3 centavos to 25.17 reais at 3:18 p.m. in Sao Paulo trading. The stock has plunged 54 percent in the past five months, compared with a 48 percent slump for the Sao Paulo stock exchange's benchmark Bovespa index.

To contact the reporter on this story: Laura Price in Sao Paulo at lprice3@bloomberg.net; Carlos Caminada in Sao Paulo at at ccaminada1@bloomberg.net.

Last Updated: October 31, 2008 13:24 EDT