Vale sees strong iron ore demand despite China plateau, low prices

Brazilian iron miner Vale expects strong long-term demand growth in emerging markets and high ore depletion rates across the industry to boost growth, Vale CEO Gustavo Pimenta said in a keynote at the Prospectors and Developers Association of Canada conference on March 1.

The Brazilian mining company expects urbanization and infrastructure development in markets such as India to sustain strong iron ore demand, even as pockets of weakness are forecast for key regions such as China.

Iron ore prices have come under pressure in recent months amid concerns about Chinese steel demand, which accounts for roughly 60% of global iron ore consumption. The Platts-assessed IODEX CFR China reached $100.10/dry metric ton on March 2, down 7.5% since the start of the year.

"We are not as negative in the iron ore market," Pimenta told the conference audience. "We continue to believe that demand for iron ore will remain solid and strong. Yes, China has probably plateaued, but it will come back, maybe at a slower pace than people think. ... India is growing at 10%."

India's steel production has expanded from 150 million metric tons to 350 million mt, Pimenta said.

Supply constraints

Vale's bullish demand outlook also coincides with supply-side constraints, particularly high annual depletion rates across the industry and increasing costs for developing new mining projects, Pimenta said. These factors will support pricing over the long term, even as current spot prices remain under pressure from China's demand moderation.

"Iron ore is a foundation of a lot of things that we do -- infrastructure, manufacturing, et cetera," Pimenta said, emphasizing the commodity's essential role in economic development. Population growth in emerging markets like India is expected to emerge as a major driver behind growth in the iron ore market.

Pimenta estimates Vale can generate significant EBITDA even at current price levels and expects that sustained low prices would force less competitive producers to exit the market. Pimenta anticipates that Vale's high-grade iron ore products will become increasingly valuable as the global steel industry pursues decarbonization initiatives, which typically require higher-quality raw materials to reduce emissions in steelmaking.