São Paulo – The Brazilian mining company Vale is expecting supply and demand for iron ore to remain balanced this year and in the next, said the company’s executive director for Iron Products and Strategy, José Carlos Martins, upon disclosing the results to the press this Thursday (8th). “We are working with the hypothesis of balanced supply and demand, both of which should go up,” he said, stressing that global output should not hike in such a way as to cause prices to lose sustainability.
Iron ore prices have remained bearish since the year started, due to lower-than-expected demand from China. “The supply of iron ore is going up in Australia and China, going down in India, and remaining level in Brazil,” said Martins of the current scenario. Vale produced 138.1 million tonnes of iron ore in the first half this year. The output was 2.7 million tonnes lower than expected. In quarter two, output stood at 73.2 million tonnes, according to the company.
Martins said Vale’s output has been stable for some years now, but the company is bracing for a new growth spurt due to new operations due to begin, and logistics investments. He noted that although iron ore prices have been highly volatile in the past two to three years, they have always remained within a certain range. Currently, the ore sells for US$ 135 per tonne, and the executive believes the price is strongly sustainable at the US$ 130 range. “There may be some reduction,” he said concerning the US$ 135 price point.
Vale presented its half-yearly results and celebrated its Ebitda, whose adjusted value was US$ 10.1 billion, rather similar to last year’s first-half figure of US$ 10.4 billion. According to the company chairman Murilo Ferreira, the figure was made possible by cost-cutting. “The company has worked hard to cut costs in production, administration, research and development,” he said.
The slight decline in Ebitda took place in spite of low ore prices and the appreciation of the US dollar, which is impacting on the company’s dollar-denominated debt – evidenced by the fact that operating revenues were down 8.5% from US$ 24.5 billion in the first half of 2012 to US$ 22.4 billion in the first half this year. Basic net income was down 13.7% from US$ 7.3 billion to US$ 6.3 billion. “The half-yearly result was fairly robust,” said Ferreira, considering the unfavourable global scenario, and declining ore and metal prices.
The appreciation of the dollar – which with selling for R$ 2.23 by late June, whereas the quarter-two average was R$ 2.07 – wound up benefiting Vale, and did not strongly impact its debt. The mining company informed that it is considering adopting a hedge accounting program, which would allow it to use its dollar revenues to curb the effect of the currency’s price fluctuations on its debt. The executive director of Finance and Investor Relations, Luciano Siani, emphasizes that the company’s debt and revenues are both denominated in dollars. Vale has an outstanding dollar debt of US$ 30 billion, equivalent to nine months’ worth of revenues.
*Translated by Gabriel Pomerancblum
