Vale Sees 4-Year ‘Tightness’ in Iron Ore After Profit Quadruples

Vale’s Chief Financial Officer Guilherme Cavalcanti
Vale’s chief financial officer Guilherme Cavalcanti. Photographer: Daniel J. Groshong/Bloomberg

Vale SA, the world’s largest iron-ore producer, said it expects “tightness” for the steelmaking raw material to persist for as many as four years because of rising demand and a limited number of new projects.

The economic recovery is boosting demand for steel, while tight supply is driving up ore prices, Chief Financial Officer Guilherme Cavalcanti said today on an earnings conference call. The market will be constrained for three to four years, he said.

Vale’s fourth-quarter net income climbed to $5.92 billion, or $1.12 a share, from $1.52 billion, or 28 cents, a year earlier, the Rio de Janeiro-based company said late yesterday in a statement. Vale’s earnings beat analyst estimates after selling iron ore at $121 a ton, up from $56 a year earlier.

The company plans to invest $24 billion this year, more than rivals BHP Billiton Ltd. and Rio Tinto Group, to expand its output capacity to 522 million metric tons of iron ore by 2015, enough to supply about 10 months of China’s demand. Iron-ore prices rose to the highest since at least 2008 last week on rising Chinese consumption and speculation that India, the world’s third-largest exporter, will further curtail supplies.

“Vale will continue to post impressive financial figures as commodity prices, particularly for iron ore, have risen dramatically,” Jonathan Brandt, an equity analyst at HSBC Holdings Plc in New York, said today in a note to clients. The company should have a “robust” year as it brings on additional capacity through new projects, he said.

Vale Rises

Vale rose 21 centavos to 49.46 reais as of 13:43 in Sao Paulo after earlier rising as much as 2.3 percent, the most since Jan. 3. Before today, the stock had gained about 1.6 percent this year, compared with a 3.4 percent decline for the benchmark Bovespa Index.

Vale was expected to post per-share profit of $1.01 on an adjusted basis, according to the average estimate of 11 analysts in a Bloomberg survey.

Revenue more than doubled to $15.2 billion from $6.54 billion in the fourth quarter.

The price of ore with 62 percent iron content delivered to China fell 0.4 percent to $184.10 a metric ton yesterday, according to Steel Business Briefing Commodities Research.

Vale shipped 81.9 million tons of iron ore and pellets in the period, up 17 percent from a year earlier, the company said yesterday in the filing. Quarterly profit fell short of a previous record of $6.04 billion in last year’s third quarter.

Market Imbalance

“The performance of iron-ore and pellet prices over the year shows the imbalance between global demand and supply,” according to the company. The imbalance “was the main reason for the significant revenue increase.”

Annual iron-ore production reached 307.8 million tons last year, a record for the miner and 29 percent higher than in 2009, Vale said. The company expects “a robust expansion” of the world economy this year, “supportive of a strong demand for minerals and metals,” it said.

BHP plans to spend $80 billion by the end of the 2015 financial year to expand and develop its mines, including coking coal and iron-ore projects, of which $15 billion will be invested during 2011. Rio Tinto said Feb. 10 that it expects to invest about $13 billion during this year.

Melbourne-based BHP is the world’s largest mining company and Rio Tinto is the third largest by market value.

Vale will be “disciplined” with its capital allocation and wait to see its performance during the year before deciding on any potential increase of dividend payments, Chief Executive Officer Roger Agnelli said today during the call with investors.

Copper Target

Agnelli also said the target to produce 1 million tons of copper a year by 2015 is “still alive” and that it is seeking opportunities in countries such as Zambia and Congo. Vale produced 207,000 tons of copper during 2010, up 4.5 percent from 2009, according to its production report released yesterday.

Nickel output for the fourth quarter more than doubled from a year earlier to 65,000 metric tons, while copper production climbed to 76,000 tons from 32,000 tons.

The company said last week that its total nickel production will be cut by about 5 percent this year as it repairs a damaged furnace at its Copper Cliff plant in Canada. The company, which last year said it was expecting to become the world’s top nickel producer in 2011, will lose about 15,000 metric tons of annual refined nickel production because of the downtime.

Rain in Australia and Brazil also affected the company’s production of coal and iron ore in the first quarter of this year, Vale said. Coal output in Australia was cut by 500,000 metric tons, or about 10 percent, and storms in Brazil reduced production of iron ore by about 600,000 tons.


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