IRON AND STEEL

$4.4 bn iron ore expansion by Vale this year on way to boost output by 50 percent by 2013

Brazil’s Vale, the world’s largest iron ore miner, will spend $44 billion on expanding output this year on the way to raising it by 50 percent by 2013 – and has 26 other projects which could expand output even further if strong demand from China continues to grow.

Author: Eric Onstad
Posted: Wednesday , 14 May 2008

MONTE CARLO (Reuters) - 

Vale (VALE5.SA), the world's biggest iron ore producer, is due to invest $4.4 billion this year to expand its iron ore business as it aims to boost output by 50 percent by 2013, the company said on Tuesday.

The company has a string of other potential projects that could expand production even further if strong demand from China continues, Fidel Blanco, international iron ore sales director, told Metal Bulletin's Iron Ore Symposium in Monte Carlo.

"We have another 26 projects to be implemented on market demand," he said.

Brazil's Vale (RIO.N) posted a 12 percent increase in iron ore output to a record 296 million tonnes in 2007, the strongest growth rate last year among its major rivals.

Output is due to jump to 422 million tonnes by 2012 and 450 million by 2013.

This year the company plans $11 billion in capital expenditures with the biggest portion directed toward iron ore.

Iron ore expansions are expected to help feed heavy appetite from China, which now eats up half of the world's iron ore imports, up from only 11 percent a decade ago.

Vale is also seeking to boost iron ore demand in its domestic market by helping spur investment in steel plants in Brazil by taking stakes in the developments.

It has agreed a deal with China's Baosteel for such a plant and others are on the drawing boards he said.

When asked whether this signaled a move by Vale into the steel business, Blanco said the move was related to investment in Brazil more than into the steel sector.

"We have not really defined a strategy of getting into steelmaking...we're aiming to develop the national market," he said, adding that Vale's participation in the projects was not more than 10 percent of the capital.

CONTRACT TALKS

Blanco also reiterated that Vale still supported traditional annual price negotiations despite calls for changes.

Vale achieved price hikes of 65 percent to 71 percent in the latest contract talks with Asian steelmakers to set a benchmark price for the 12 months from April, but a tight market means this is still well below spot prices.

"We support the benchmark system. It might not be a perfect system, just like democracy is not perfect, but it is probably the best thing for the time being," he said.

Rivals Rio Tinto (RIO.L) (RIO.AX) and BHP Billiton (BHP.AX), the second and third largest in the sector, have not yet agreed a benchmark price this year as they press consumers to pay more for their Australian iron ore by including a freight differential.

There have also been calls for contract prices to better reflect changes in spot prices, which have soared over the past few years as heavy demand from China created shortages.

BHP Billiton's (BLT.L) Chief Executive Marius Kloppers has said he would like to see iron ore traded like other commodities so prices can reflect the underlying fundamentals.

(Reporting by Eric Onstad; Editing by Derek Caney)

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