Vale Sees Recovery in Ore, Metals Demand After Profit Slumps

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31 Jul 2009

Vale SA, the world’s biggest iron- ore producer, said demand for metals is starting to recover and it may boost output after second-quarter profit slumped. Measures to counter the financial crisis “have started to bear fruit, resulting in less risk aversion, a reduction of costs and the start of a recovery in demand and prices for minerals and metals,” Vale said in a statement yesterday. The non-ferrous business has “started to capture the benefits of better market fundamentals,” the company said.
Vale slashed production of iron ore, which accounts for about two-thirds of sales, after some steelmakers cut output by half because of a global economic contraction that pared orders from builders and carmakers. The Rio de Janeiro-based company is cutting annual contract prices for the first time in seven years and said second-quarter ore shipments fell 32 percent.  Net income dropped to $790 million, or 15 cents a share, from a record $5.01 billion, or $1.04 a share, a year earlier, the company said after the close of trading yesterday. Vale was forecast to report earnings excluding some items of 30.5 cents a share, the average of 11 analysts in a Bloomberg survey.
“The second-quarter continued very unfavorable for the mining and steel sectors, due to low global industrial activity,” Pedro Galdi, a Sao Paulo-based analyst with SLW Corretora, said before the result was announced. Both industries should pick up in the third quarter, he said.  Shipments Fall  Shipments of iron ore and pellets fell 32 percent in the second quarter to 53.8 million tons. China was the only major buyer to increase shipments, boosting purchases by 42 percent. Sales of the steelmaking ingredient to the U.S. plunged 90 percent, while sales to Europe dropped 75 percent. Second quarter sales fell 53 percent to $5.08 billion.  Vale agreed to lower prices by 28 percent for iron-ore fines, the most-common form of the raw material, and by 48 percent for pellets. The company is resisting plans by Chinese customers to seek greater discounts than the 28 percent cut agreed with Japanese steelmakers including Nippon Steel Corp. and also ArcelorMittal, the world’s biggest steelmaker.
Nickel prices for delivery in three months averaged 49 percent less than a year earlier on the London Metal Exchange. Vale is the world’s second-largest nickel producer, after OAO GMK Norilsk Nickel. The metal is used in stainless steel, where demand is recovering after a two year decline, Vale said.
‘Gradual Recovery’  “It is likely that the gradual recovery of the global demand for minerals and metals will continue over the next six months which will lead to us to increase operational activities although at a more moderated pace than last year,” Vale said.  Vale fell 1.7 percent in Sao Paulo trading yesterday, to 31.85 reais. The results are based on generally accepted accounting principles in the U.S.

Source: Bloomberg