Brazil' Vale 'bending over backwards' to avoid retrenchments as a result of global economic slowdow

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29 Nov 2008

Brazilian mining, logistics and energy group Companhia Vale do Rio Doce (Vale) CEO Roger Agnelli has revealed that the company is bending over backwards – the phrase he used translates literally as ‘doing gymnastics’ – to avoid having to dismiss any of its employees. At the end of last month, Vale announced that it was cutting its iron-ore production by 10%, or 30-million tons, as well as reducing its production of pellets, aluminium, manganese and other commodities. Workers were also sent on leave.
The cuts were announced in response to the drop in international demand resulting from the current financial crisis and developing recession in most of the world’s leading economies. US bank Citibank, in a recently released report, stated that it expected iron-ore prices to fall by 20% in the 2009 contracts, pointing out that market prices were already below those enshrined in the 2008 contracts.
“Until February or March 2009, [management] will be doing gymnastics to try to keep our employees, because we always make a heavy investment in the training of our technical staff,” said Agnelli. “Now is not the time to lose them. Now, there is a limit to all this, and we are hoping that things improve very fast.” He is, however, optimistic about the near future and believes that the group will emerge from the current crisis as a stronger company.
Rio Tinto CEO Tom Albanese is also optimistic. His group has followed Vale in cutting production, announcing a 10% reduction in its Australian iron-ore output. But Albanese commented that he believed that the current downturn in the global economy would be “temporary”, and that East Asian demand would begin to accelerate again in the middle of next year. He affirmed that the fundamentals of Chinese economic growth remained very good.
In contrast, BHP Billiton has reported that it has no plans to reduce its production of iron-ore. Vale, Rio Tinto and BHP Billiton are the three biggest producers of the metal.
However, Citibank forecasts that the current downturn in the iron-ore market will endure for another 12 to 18 months, pointing to huge stockpiles of iron-ore at Chinese ports. The bank also expects iron-ore exploration activities to be reduced by half, because of the drying up of credit, until 2010.
Yet, despite the credit crunch, Vale last week concluded an agreement with South Korea’s State-run Export-Import Bank (Eximbank), which gives the Brazilian group access to a $1-billion credit line. The loan will be used for investments in Brazil, and the commodities produced as a result will be exported to South Korea. Last year, the Brazilian group became the biggest supplier of iron-ore to the East Asian country, providing more than 20% of South Korea’s imports.
The Eximbank credit came at “a good time”, stated Agnelli. “We also have other credit lines, such that Vale investments are guaranteed with long-term credit and appropriate interest rates.”
Vale has not yet decided which projects wll benefit from the Eximbank credit. For its part, Eximbank said in a statement: “The agreement will allow us to share information on mining projects with a top-class global company and is also expected to bolster South Korean firms’ participation in raw material projects in South America.”
Last month, Agnelli expressed the view that the downturn could create opportunities for new acqusitions by his company, because there would be cheap opportunities in the market. “Those who were not prepared for this crisis will be expelled from the market,” he affirmed. “And those who were properly prepared for this crisis are going to have many opportunities ahead. Vale was prepared, with hard work to reduce costs, diversify products, internationalise, [and] we have all the financing necessary for our currently contracted projects.”

Source: Mining Weekly