You Must Know This: Vale admits concern over the price of iron ore

Director of Strategic Planning at Vale, Stephen Potter, said the company is also concerned about the fall in the price of iron ore, which fell below $80 a tonne recently. The statement was made during the International Mining and Resources Conference, held in Melbourne, Australia.

Vale’s director of strategic planning Stephen Potter said it was always a challenge for large mining companies to work out their exposure to commodities, given structural shifts in powerful economies like China.

“Everyone is nervous about the iron ore price at the moment; are we shifting from heavy industrial (phase) to a consumer-led industrial (phase) in some classical economics professor’s views on development, and does that mean China is going to be using less iron ore? Well these are always the challenges for a mining company to decide which commodities it needs to invest in,” Mr Potter told a mining conference in Melbourne on Tuesday.

China will not be making any major policy adjustments due to a change in one economic indicator, Finance Minister Lou Jiwei said on Sunday.

The Chinese government is attempting some monetary stimulus; last week it cut the rate for short-term borrowing costs for banks by 20 basis points to 3.5 per cent.

Vale at disadvantage

Vale has traditionally sold iron ore to China at a disadvantage because it is further away from China compared to its Australian rivals.

But the Brazillian giant has recently struck a deal with a Chinese shipping company to allow extra large ships to carry its iron ore into Chinese ports under a plan that should cut unit costs through economies of scale and the use of modern, cleaner, more efficient technology.

Mr Potter said the new ships, known as Valemax, would cut Vale’s production costs and were 35 per cent less carbon intensive than the cape-sized vessels traditionally used in the bulk commodity industry

“Our new generation of large ships are very important, it is probably our biggest opportunity to reduce carbon dioxide emissions in our value chain,” he said.

“We do it for money as well, they are much more competitive. Brazil faces a desperate disadvantage compared to Australia being on the other side of the world from China.”

Mr Potter said Vale was hoping to further improve the fleet by changing the fuel mix.

“We hope to take it further, we are hoping to convert our vessels to LNG,” he said.

China growth

Andrew Michelmore is the Australian boss of Chinese miner MMG, and said the Middle Kingdom was focused on cleaning up several aspects of its growth before resuming its focus on progression.

“There’s a big clean out of stuff going on at the moment. At the political level Xi Jinping  is cleaning up the corruption side of it and that means people are hesitant about making decisions,” he said.

“He is also driving down the bubble on private housing which everyone knows about.

“This is taking longer than he thought it would and it creates uncertainty and therefore the projections of growth are lower but it will actually come out with a more solid base to then grow.”

Mr Michelmore said the Australian dollar was over-valued and a lot of foreign money would exit if it fell significantly.

Mr Michelmore said China would resume consumption of commodities over time and provide a strong market for copper and other minerals.

The copper price in particular should rebound in the second half of 2015. (Source: SMH)