Yesterday, Brazilian miner, Vale S.A. (VALE), announced the resumption of its work in many of its idled mines. The mines were closed when the company experienced a considerable decrease in demand from Japanese and European steelmakers due to the economic crisis.

The economic downturn led the company to reduce its production by as much as 30%. However, based on the belief that the market conditions will be more reasonable in the coming months, VALE is reopening certain operations.

Even though the overall economic environment remains quite challenging, it seems that demand for metals has already reached the bottom, particularly in Asia, and is beginning to reverse. The company restarted its Agua Limpa iron ore mine, which is expected to produce 5.4 million tons of iron ore by the end of 2009. This is 17% above its 4.6 million tons of production in December 2008.

During the crisis, unlike other countries China was really bullish. The company has benefited from rising spot iron ore prices in recent months on growing demand in China and diplomatic friction between Beijing and Canberra over the detention of executives of Australia’s Rio Tinto Group (RTP).

China’s steel industry officials continue negotiating the annual benchmark pricing of iron ore as they struggle to win greater price cuts from 2008 benchmark levels than other Asian clients.

Vale is still waiting for Australian miners, RTP and BHP Billiton Ltd. (BHP), the world’s second and third-largest iron ore suppliers respectively, to settle annual prices with China.

The outlook for 2009 is still uncertain as we have no reliable information on price adjustment for iron ore for 2009. However, we are optimistic based on the fact that the company is taking every measure to reduce costs and adjust to the present situation and short-term demand from Asia is showing recovery signs.

Zacks Investment Research
View original at: Zacks.com News Feed

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