Recently, Murilo Ferreira, Vale’s CEO, appeared on the front cover of a Chinese publication, Caixin Weekly, along with the CEOs from Royal Dutch Shell and the French Oil giant, Total. The publication is the flagship magazine of the Caixin Media Co., and the three CEOs appeared in the cover story titled “Commodity Prices Make a Comeback.”
On the back of a slump in global demand for commodities, principally petrol and iron ore, the article explored how the three companies had coped with market volatility and now, during a rebound in prices, what opportunities lie ahead.
Ferreira spoke primarily about the importance of the Chinese market, which he said was responsible for the third super cycle the world has seen after reconstructive efforts in Europe and Japan after World War II and in the U.S. during its construction boom at the turn of the 20th century. Vale’s relationship with China dates back to 1973 and now ships more than 50% of its iron ore to the country.
When asked why the price of iron ore has rebounded sharply in recent months, Ferreira responded by saying that the availability of credit in China has been a driving force in making property available to the people. “In the last two years, we had a drop of 25% in real estate and just in the two months, we have seen an increase of 13.7%,” he said.
Vale’s strategy has been well documented with the construction of Valemax Ships and the Teluk Rubiah Martime Terminal in Malaysia. Together, they have increased Vale’s blending agility and due to the location of the distribution center has reduced its “time to market” to 10 days.
Currently, Vale ships 180 million tons to China, ranking No. 3 after Rio Tinto and BHP Billiton. But with the impending completion of the Carajás S11D iron project, the largest ever project in Vale’s history, Ferreira said that Vale will be aiming to increase its sales to China by 40% in the future, with the aim of reaching 250 million tons, thus becoming the largest iron ore supplier to China.
To be able to achieve this, Vale is already taking active steps of building up inventories in Malaysia and establishing iron ore distribution centers in China. “We are in a final stage of some negotiations with many port facilities in China, with the idea to increase our inventory and be much closer to our customers,” Ferreira said.
With an increase in inventories in Malaysia and China, Vale will have the flexibility to stock ore and then sell locally with a better time to customer and a reduced freight cost from Brazil to Asia.
The commodities rebound has seen prices come from a low of $32 per ton back up to $58 per ton, but what about future prices? Ferreira predicts that the long-term price of iron ore will level out bewteen $65 and $80 per ton. “Not so outstanding, but a good rebound,” he concluded.
