The recent softening of iron ore prices will likely be short-lived, says the world’s largest exporter of the steelmaking ingredient.
In releasing its third-quarter results, Brazil-based Vale SA (NYSE:VALE) is forecasting high prices “for a long period ahead” because of growing demand from developing countries and constraints to supply growth. The iron ore giant therefore indicated it needs to stay ahead of the game for when the price rise demands a quick reponse:
“We highlight the need to invest just to replenish lost capacity — amounting to an estimated minimum of 80 million metric tons per year on a global basis — and to build a costly logistics infrastructure alongside the increasing difficulties posed by environmental permitting, the increasing scarcity of high-quality reserves of iron ore and skilled labor, and the tightness in equipment and engineering services supply.”
Looking back on its third-quarter results, Vale said it posted record revenues of $16.7 billion on higher production of iron ore, pellets, copper and thermal coal. Q3 revenues were up 9.1% from the second quarter, which was also a record. This despite Vale suffering a US$2.9 billion charge due to the depreciation of the Brazilian real against the US dollar.
Net earnings were down 23.5% from the second quarter to US$4.9 billion.
The company noted it has tripled its dividend compared to last year, to 58 cents a share.
With prices down around 30% this month, Vale’s competitors Rio Tinto and BHP Billition have begun to respond to demands from Chinese steelmakers to sell iron ore on monthly contracts, or even at spot prices, which are up to 25% cheaper than quarterly contracts, but Vale is sticking to the quarterly-pricing model, saying “… we have implemented the quarterly pricing system very successfully on a global basis.”
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