Vale Sees Iron-Ore Oversupply From 2015 on New CapacicityJuan Pablo Spinetto
Vale SA, the world’s largest iron-ore producer, said supply of the steelmaking raw material is expected to grow faster than demand, reducing support for future increases in price.
Iron-ore producers may have between 5 percent and 6 percent more capacity than demand by as early as 2018 as China steel consumption slows and companies boost output, Vale’s head of Ferrous & Strategy Jose Carlos Martins told reporters in Sao Paulo yesterday. While iron-ore prices are expected to remain above $100 a metric ton, the extra supply will make prices less volatile and unlikely to repeat spikes seen previously, he said.
“We will probably start to have some surplus capacity around 2015,” Martins said at the World Steel Association’s annual congress. “Peak prices are unlikely to happen again.”
Vale, based in Rio de Janeiro, is spending almost $20 billion in its Serra Sul mine and logistics venture in Carajas, the world’s largest iron-ore complex, which is the industry’s most expensive project. The investment, scheduled to start operating in late 2016, will add 90 million metric tons of nominal capacity, or almost a third of Vale’s 2013 expected production.
A 5 percent excess capacity can still be considered a “tight” market for iron-ore, Martins said, adding that global capacity may reach about 1.6 billion tons by 2020 with consumption at 1.5 billion tons.
“Any problem you may have at a port or a mine, like weather events, you enter in a situation of lack of supply.”
Vale expects to boost its production capacity by 50 percent to 450 million metric tons by 2018 once the Serra Sul project, also known as S11D, reaches full output, Martins said during a presentation at the event. The company will spend $34 billion on its approved iron-ore mining and logistics projects in the period, he said.
Vale has dropped 23 percent this year, compared with a 14 percent decline for the Brazilian benchmark Ibovespa index. It was down 0.2 percent to 31.34 reais at 10:50 a.m. in Sao Paulo, heading to its lowest close since Aug. 30.
Iron ore with 62 percent content delivered to the Chinese port of Tianjin has fallen 9.3 percent to $131.40 a ton this year and is trading 32 percent below its February 2011 record of $191.90, according to The Steel Index Ltd.
Steel consumption growth in China, the world’s largest producer and biggest buyer of iron ore, is likely to moderate in coming years, Martins said.
“This year they are growing more than expected and we are expecting a more moderated growth next year,” he said. “Nobody can grow at the pace that China has been growing in the last 10, 15 years. At some point you will have a slow down. But there won’t be a reduction.”