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Vale to Halt Three Pellet Plants in Brazil as Demand Weakens

Vale SA Chief Executive Officer Murilo Ferreira
Vale SA Chief Executive Officer Murilo Ferreira sold coal, manganese and logistics assets this year and is reviewing all of the company’s projects to cut costs as demand wanes amid the outlook for slower growth in China, the biggest buyer of iron ore. Photographer: Jin Lee/Bloomberg

Oct. 4 (Bloomberg) -- Vale SA, the world’s largest iron-ore producer, will suspend output at three pellet feed plants in Brazil, relocating workers, as demand from steelmakers declines.

Production will be temporarily halted at the Sao Luis unit in northern Brazil Oct. 8 and at the Tubarao I and Tubarao II plants in the country’s southeast Nov. 13, Vale said in a statement today, without saying how long the units will remain idle. The reduced processing of iron ore into pellet feed means production of sinter feed, a rawer form of the material, will expand, Vale said.

Chief Executive Officer Murilo Ferreira sold coal, manganese and logistics assets this year and is reviewing all of the company’s projects to cut costs as demand wanes amid the outlook for slower growth in China, the biggest buyer of iron ore. Ferreira said Aug. 16 that he will postpone a $3 billion potash project in Canada and may delay other investments to focus on expanding the company’s biggest mine.

Vale’s decision signals lower demand by steelmakers, said Leonardo Brito, an equity analyst at hedge fund Teorica Investimentos.

“Vale’s margins will suffer because pellets are a product of higher value,” he said in a telephone interview from Rio de Janeiro today. “The world is changing, and Vale is adapting to it.”

Pellet Demand

The three units that are being halted produced 4.93 million metric tons of pellets in the first half of this year, or 18 percent of the company’s total production of the material, the Rio-based company said.

“This adjustment stems from the change in the composition of steel-industry demand for raw materials throughout the cycle, where there is a contraction in pellet consumption in favor of greater use of sinter feed,” Vale said in the statement.

Iron ore, which accounts for about 90 percent of Vale’s earnings before items, declined to the lowest since October 2009 last month amid weaker Chinese demand. Iron ore for immediate delivery to the Chinese port of Tianjin, a benchmark for Asia, was unchanged at $104.20 a ton today according to a price index compiled by The Steel Index Ltd.

Vale rose less than 1 percent to 35.02 reais at the close in Sao Paulo.

BHP Billiton Ltd., the world’s largest mining company, in August delayed about $68 billion of projects, including an iron-ore port expansion, amid sluggish global growth. Fortescue Metals Group Ltd., Australia’s third-biggest iron-ore producer, on Sept. 4 cut its full-year spending forecast by 26 percent to $4.6 billion.

To contact the reporters on this story: Carlos Caminada in Sao Paulo at ccaminada1@bloomberg.net; Juan Pablo Spinetto in Rio de Janeiro at jspinetto@bloomberg.net

To contact the editor responsible for this story: James Attwood at jattwood3@bloomberg.net

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