It is reported that when Brazil's government recently announced plans to triple its output of iron ore, copper and gold by 2030, the news had special meaning to Vale SA.
Vale is Brazil's largest mining company and one of the biggest in the world. The lineup of materials it produces includes iron ore and iron ore pellets as well as nickel, manganese ore, aluminum, copper, gold, silver and potash.
On February 8th 2011, Brazil's government unveiled a 20 year, USD 270 billion plan to increase its production of iron ore, copper and gold. The Carajas iron ore mine in Para, northern Brazil, is one of the mines operated by Vale.
The Carajas iron ore mine in Para, northern Brazil, is one of the mines operated by Vale.
Among other things, the plan calls for companies to add value to their products before exporting them by investing in processing facilities such as steel mills. The plan also seeks to decrease Brazil's reliance on China, its biggest trade partner, by diversifying its customer base to include other countries.
Vale itself gets much of its business from China. Last quarter, China's share of Vale's ferrous mineral sales increased to 46% from 39% the previous quarter. Total sales of ferrous minerals, or those rich in iron, accounted for 64% of Vale's overall sales during the quarter.
Brazil's plan for increased production was announced on the same day that ArcelorMittal forecast a faster-than-expected recovery in steel demand and prices.
According to the Web site Index Mundi, that demand should help boost iron ore prices further, which is good news for Vale. Iron ore prices rose more than 80% in 2010 before closing the year at a spot price of USD 182 per tonne. That price moved higher in January 2011. Some experts reckon iron ore will rise to USD 200 per tonne in Asia, thanks to heavy demand from China.
Meanwhile, the continued strength of metals such as gold and copper also bodes well for Vale as it moves to a more diverse operating model.
Mr Alexander Hacking analyst at Citigroup wrote in a report that "Vale's earnings are exposed to highly volatile commodity prices, but this is mitigated by the company's size, investment grade debt and increasing diversification out of iron ore."
Financially, Vale has seen its fortunes rise dramatically since it hit a rough spot during the 2009 recession. Earnings have more than tripled the last two quarters, while sales have risen at least 88% over the same period.
(Source: www.steelguru.com )