Vale SA, the world’s largest iron-ore producer, is considering cutting output from its most expensive mines after a global supply glut caused prices to plummet.
As much as 30 million metric tons a year may be trimmed, said Peter Poppinga, the company’s executive director for ferrous and strategy. Curtailments don’t necessarily mean shutting mines, he added.
“If the market demands it, we are ready to reduce some production flows in the Southeast to optimize and increase our margins even more,” Poppinga said on a conference call Thursday, referring to one of Vale’s main producing regions in Brazil.
The comments from the Rio de Janeiro-based producer come after rival BHP Billiton Ltd. said April 22 it will defer port works in Australia, slowing its expansion. Smaller suppliers including Atlas Iron Ltd. also suspended output. The adjustments to an oversupplied market helped iron-ore prices enter a bull market last week after falling to the lowest in a decade.
Vale surged 6.2 percent to 18.15 reais in Sao Paulo on Thursday, paring its loss in the past year to 31 percent. It was the second-best performer on the Bloomberg Industries Metals, Mining and Steel Aggregate Index.
Vale won’t cut production unless iron-ore prices drop below $50 a ton, according to Christopher LaFemina, an analyst at Jefferies Group LLC in New York. Iron ore with 62 percent content at Qingdao, China, fell 1.7 percent to $56.18 a ton Thursday, according to Metal Bulletin Ltd.
“We would not expect the company to idle this capacity, which is profitable at current prices, unless iron ore falls back into the mid $40s,” he said in a note to clients. “Production cuts from Vale and other majors will be needed to balance the market at that time.”
First-quarter adjusted earnings before interest, taxes, depreciation and amortization, or Ebitda, dropped 61 percent to $1.6 billion from a year earlier, the company said Thursday. That topped the $1.55 billion average of 11 estimates compiled by Bloomberg and was the lowest Ebitda since the second quarter of 2009.
“We have mines that have higher costs and certainly can be adjusted along time at various price levels,” Chief Executive Officer Murilo Ferreira said on the call without giving details. “We favor the most competitive mines.”
Globally, there are about 400 million metric tons of iron ore being produced at a loss, Poppinga said. The company is maintaining its long-term target to grow production capacity 29 percent to 450 million tons a year.