Vale iron ore head sees Asia driving steel market

Wednesday, 30 Nov 2011

Reuters reported that iron ore will continue to sell in the range of USD 120 to USD 180 per tonne in the near term, while China, a driver of Asian steel consumption, constrains its economy in the face of inflationary threats.

Mr Jose Carlos Martins, Vale's executive director for iron ore and strategy told Reuters that but the market for the key ingredient for steel manufacture is expected to grow as Asia builds up its infrastructure and Western steelmakers stagnate.

He added that "For the bigger part of this year, the price was around USD 180. I don't believe in the next year the price will go above 180 or below 120. The scenario is moderate to good."

Earlier, Vale slashed its capital spending budget for 2012 by 11% and pushed back its largest iron ore project by two years in the face of falling commodities prices and environmental delays.

During an interview at the New York Stock Exchange where the company's executives met Wall Street investors, Mr Martins said global steel production was a tale of two halves of the world since the 2008 recession.

He added that "In Europe and America, in the western world, the market has kind of stagnated. Steel production in the western world is 15% to 20% below pre crisis levels. So the western world has never recovered. Those countries don't have enough space to promote growth, so we do not see the western world moving, probably it will be stable."

But in contrast, he said China was the main factor behind steel consumption growth in Asia. He added that "China is facing an inflationary environment, so they put a lot of constraints in the economy to prevent inflation going up. The whole scenario is not that good as far as steel production is concerned or iron ore."

But on the other hand, when the price reaches that low level of USD 120, many high cost Chinese mines cannot keep operating, so steelmakers will buy iron ore from abroad.

Mr Martins said that "I believe USD 180 is the limit on the upside, but I believe the price will move more in the downside area than the upside. But it's very difficult to say, as China is very unpredictable. That's the reason I am moderately optimistic. Before the crisis, steel production in Europe and the western world was down by 20%, but in Asia it was up by 30%. It's very simple, it's demographics."

He said that "In the west, you can improve the infrastructure, but it's already there. In the west, steel production is very much linked with the economy. If the economy is doing well, because of consumer goods, then you will have more steel consumption. But in Asia, even if consumer goods are not doing well, you still have to build infrastructure."

(sourced from Reuters)