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Vale sees iron ore market at best point in two years on China import dependency

Brazil's Vale, the biggest iron ore miner in the world, sees the market for the steelmaking raw material at its best point in the last two years, according to CEO Murilo Ferreira.

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He sees smaller iron ore suppliers exiting mines and delaying projects in China, Mexico, Canada and Brazil, leaving open a more consolidated marketplace for the biggest and more efficient miners to capitalize on, according to comments he made in a local newspaper interview confirmed by the company Friday.

The outlook for iron ore is much better than four months ago when prices dipped, with many adjustments made in supply, Ferreira told Valor Economico.

However, prices may not return to previous high levels at multiplies of over three times current quotes, with even the $100/dry mt CFR China mark difficult to reach, he added.

Platts IODEX 62% fines index was steady in the mid $50s/dmt CFR range for much of August, assessed at $56.75/dmt Friday. The benchmark fell into the $40s/dmt range first in April and later in July before the market rallied.

China is expected to see domestic iron ore production fall to around 200 million mt/year, he said, suggesting a sharp adjustment and growth in import substitution from the second half of 2015.

Increasing reliance from China on seaborne imports is expected by the industry, although remaining domestic mines had kept up share as steel output fell earlier this year, based on trade data.

Vale should ramp up output further next year, guiding somewhere between the forecast for 2015 of 340 million mt and the previous 2016 target of 376 million mt, with more emphasis now on quality and margins than outright volumes.

Still, Vale is selling all the iron ore it produces in overseas and domestic markets. As the new S11D project starts in the second half of 2016 to peak in 2018, the miner should cement its scale at the top of the industry.

Ferreira summed up the recent Chinese yuan devaluation as part of a transition to a more markets-based economy with greater emphasis on services and a strongly incentivized industrial sector still demanding iron ore imports.

There is a change in the structure of growth in China, he noted, rather than a shift in the long-term fundamentals for steel and iron ore as the pace of GDP allows for expansions in new steel incentive projects.

Chinese growth is no longer exuberant, rather a benign growth is seen, he told the newspaper.

--Hector Forster,
--Edited by Kevin Saville,