Vale Expected to Keep Feeding Iron Glut as China Demand Slows

  • Brazil miner estimated to report record 88.3m tons production
  • Morgan Stanley projects oversupply to endure to at least 2020

The biggest iron-ore miner is expected to have more bad news for its competitors this week: another quarter of record production.

On Thursday, Vale SA will report all-time high output of 88.3 million metric tons for the fourth quarter, up from 88.2 million in the third quarter and 83 million a year earlier, according to the average forecast of seven analysts surveyed by Bloomberg News. Vale will join rivals Rio Tinto Group and BHP Billiton Ltd. in boosting production at a time steel making and demand in China contracts after years of growth.

As prices slump, the three dominant iron-ore players have opted to plow on with expansions to displace less efficient producers. Morgan Stanley projects the ensuing glut will endure to at least 2020. Benchmark iron ore prices have been trading below $60 a ton since mid last year and are down more than 70 percent from a 2011 peak.

Ore with 62 percent content delivered to Qingdao was $46.78 a dry ton on Tuesday, according to Metal Bulletin Ltd. While that’s the highest level since mid-November, prices were above $100 two years ago.

Vale is adding production from projects in Brazil’s southeastern state of Minas Gerais as it finishes the expansion of Carajas, the world’s largest iron-ore complex. While a surge in output from Australia’s two biggest iron ore producers is slowing, Rio Tinto’s fourth-quarter production still expanded 10 percent from a year ago, while BHP’s rose 1 percent.

The production estimates for Vale exclude joint ventures and third-party purchases. The Rio de Janeiro-based miner’s total production in the quarter was curtailed by the suspension of its Samarco joint venture with BHP after a Nov. 5 dam rupture.

Vale is set to release financial results on Feb. 25.

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