By Juan Pablo Spinetto - Oct 6, 2012
Bloomberg
Vale SA’s (VALE5) plan to reduce output of iron-ore pellets by 18 percent is the latest evidence the steel industry is slowing in Brazil amid weakening demand and a global supply glut.
Vale, the world’s largest producer of the main raw material used to make the metal, follows steelmakers from ThyssenKrupp AG to Belo Horizonte, Brazil-based Usinas Siderurgicas de Minas Gerais SA in cutting back output and investment. The country’s steel exports fell 29 percent in August from a year earlier.
ArcelorMittal, the world’s largest steelmaker, suspended plans to expand two Brazil plants last year, while Essen, Germany-based ThyssenKrupp is seeking to sell its 5.2 billion- euro ($6.8 billion) steel plant in Rio de Janeiro state. A preliminary accord between Ternium SA and billionaire Eike Batista’s logistics unit LLX Logistica SA to build a mill expired Sept. 30 with no deal.
“I don’t think the future is that bright in the short term,” HSBC Holdings Plc analyst Jonathan Brandt said in an interview from New York. “The current utilization rate of the Brazilian steel industry is very low.”
The reduction in steel output reflects a slackening in manufacturing from China to the U.S., as well as Brazil. Chinese industrial production grew at the slowest annual pace in three years in August, while the U.S.’s monthly decline was the biggest since March 2009. In Brazil, car sales slumped 31 percent in September from August.
Stocks Slump
Vale has declined 7.5 percent in Sao Paulo trading this year, the worst-performance of the three biggest iron-ore producers. Melbourne-based BHP Billiton Ltd (BHP), the world’s largest mining company, fell 3.2 percent, while London-based Rio Tinto Group dropped 4.4 percent.
Usiminas, as the second-largest Brazilian steelmaker is known, and Sao Paulo-based Cia. Siderurgica Nacional SA are also tumbling as Brazilian car production declines. CSN slumped 35 percent in the past six months, while Usiminas lost 16 percent. Gerdau SA, which focuses on steel for construction projects, rose 8.1 percent in the same period.
Vale dropped 0.1 percent to 34.98 reais at the close in Sao Paulo today, while CSN dropped 1.5 percent and Usiminas declined 1.6 percent. Porto Alegre-based Gerdau was unchanged from yesterday.
Usiminas plans to reduce investments in steel next year while increasing capital expenditures for mining, Chief Financial Officer Ronald Seckelmann told analyst on July 31. The company, which in April said it was aiming to invest 2.5 billion reais this year, cut the plan to 2 billion reais.
ThyssenKrupp in May said it may seek a partner or sell its Rio plant known as CSA, where Vale has a 26.9 percent stake and an iron-ore supply contract, as Brazil output costs are rising “disproportionately.”
Batista’s Port
Ternium SA will most likely delay a decision to go ahead with the project to build a plant at Batista’s Acu port, Chief Financial Officer Pablo Brizzio told analysts during a conference call on Aug. 1.
LLX’s press office in Rio de Janeiro declined to comment on the status of the project. Ternium press official Romina Savini in Buenos Aires declined to comment when contacted by Bloomberg News.
ArcelorMittal said in November it will suspend the expansion plan for its Monlevade plant in Brazil amid a global slowdown and lower-than-forecast steel demand in the Latin American country. It also put on hold a $300 million expansion project at its Santa Catarina plant in southern Brazil.
Halted Output
Vale yesterday said production of iron-ore pellets will be halted at its Sao Luis unit in northern Brazil Oct. 8 and at the Tubarao I and Tubarao II plants in the country’s southeast Nov. 13, without saying how long the units will remain idle. The reduced processing of iron ore into pellets means output of sinter feed, a rawer form of the material, will expand, Vale said. Its press office in Rio declined to comment further.
“The company’s decision to shut down some of its pelletizing facilities is a clear indication of the deterioration in the market for high-quality iron-ore products,” Barclays Plc analysts led by Leonardo Correa said in a note to clients yesterday. Weakening demand for the pellets reflects a “drive of steelmakers to maximize cost savings,” they said.
Vale Chief Executive Officer Murilo Ferreira sold coal, manganese and logistics assets this year and is reviewing all of the company’s projects to cut costs as demand wanes amid the outlook for slower growth in China, the biggest buyer of iron ore. Ferreira said Aug. 16 that he will postpone a $3 billion potash project in Canada and may delay other investments to focus on expanding the company’s biggest mine.
Right Decision
The decision to sell units with lower returns is allaying concerns that slowing demand from steelmakers and declining prices for iron ore will pare profits.
“Vale is doing what it has to do,” Leonardo Brito, an equity analyst at hedge fund Teorica Investimentos, said in a telephone interview from Rio.
Iron ore, which accounts for about 90 percent of Vale’s earnings before items, declined to the lowest since October 2009 last month amid slowing Chinese purchases. Iron ore for immediate delivery to the Chinese port of Tianjin, a benchmark for Asia, was unchanged at $104.20 a metric ton today, according to a price index compiled by The Steel Index Ltd.
Morgan Stanley lowered its iron-ore price forecasts for 2013 and 2014 on slower steel production in China, the largest maker and consumer of the metal, Chief Metals Economist Peter Richardson said in a quarterly report yesterday.
Elsewhere
BHP Billiton Ltd., the world’s largest mining company, in August delayed about $68 billion of projects, including an iron- ore port expansion, amid sluggish global growth. Fortescue Metals Group Ltd. (FMG), Australia’s third-biggest iron-ore producer, on Sept. 4 cut its full-year spending forecast by 26 percent to $4.6 billion.
Steelmakers worldwide are trying to cut costs and one way of doing it is replacing pellets for lower grade iron ore, which is less expensive, HSBC’s Brandt said.
“Vale will sell more of a product that has a lower price so revenues will suffer,” he said in the interview. “Global steel producers are using lower quality grades to save a few bucks.”
Bloomberg
Vale SA’s (VALE5) plan to reduce output of iron-ore pellets by 18 percent is the latest evidence the steel industry is slowing in Brazil amid weakening demand and a global supply glut.
Vale, the world’s largest producer of the main raw material used to make the metal, follows steelmakers from ThyssenKrupp AG to Belo Horizonte, Brazil-based Usinas Siderurgicas de Minas Gerais SA in cutting back output and investment. The country’s steel exports fell 29 percent in August from a year earlier.
ArcelorMittal, the world’s largest steelmaker, suspended plans to expand two Brazil plants last year, while Essen, Germany-based ThyssenKrupp is seeking to sell its 5.2 billion- euro ($6.8 billion) steel plant in Rio de Janeiro state. A preliminary accord between Ternium SA and billionaire Eike Batista’s logistics unit LLX Logistica SA to build a mill expired Sept. 30 with no deal.
“I don’t think the future is that bright in the short term,” HSBC Holdings Plc analyst Jonathan Brandt said in an interview from New York. “The current utilization rate of the Brazilian steel industry is very low.”
The reduction in steel output reflects a slackening in manufacturing from China to the U.S., as well as Brazil. Chinese industrial production grew at the slowest annual pace in three years in August, while the U.S.’s monthly decline was the biggest since March 2009. In Brazil, car sales slumped 31 percent in September from August.
Stocks Slump
Vale has declined 7.5 percent in Sao Paulo trading this year, the worst-performance of the three biggest iron-ore producers. Melbourne-based BHP Billiton Ltd (BHP), the world’s largest mining company, fell 3.2 percent, while London-based Rio Tinto Group dropped 4.4 percent.
Usiminas, as the second-largest Brazilian steelmaker is known, and Sao Paulo-based Cia. Siderurgica Nacional SA are also tumbling as Brazilian car production declines. CSN slumped 35 percent in the past six months, while Usiminas lost 16 percent. Gerdau SA, which focuses on steel for construction projects, rose 8.1 percent in the same period.
Vale dropped 0.1 percent to 34.98 reais at the close in Sao Paulo today, while CSN dropped 1.5 percent and Usiminas declined 1.6 percent. Porto Alegre-based Gerdau was unchanged from yesterday.
Usiminas plans to reduce investments in steel next year while increasing capital expenditures for mining, Chief Financial Officer Ronald Seckelmann told analyst on July 31. The company, which in April said it was aiming to invest 2.5 billion reais this year, cut the plan to 2 billion reais.
ThyssenKrupp in May said it may seek a partner or sell its Rio plant known as CSA, where Vale has a 26.9 percent stake and an iron-ore supply contract, as Brazil output costs are rising “disproportionately.”
Batista’s Port
Ternium SA will most likely delay a decision to go ahead with the project to build a plant at Batista’s Acu port, Chief Financial Officer Pablo Brizzio told analysts during a conference call on Aug. 1.
LLX’s press office in Rio de Janeiro declined to comment on the status of the project. Ternium press official Romina Savini in Buenos Aires declined to comment when contacted by Bloomberg News.
ArcelorMittal said in November it will suspend the expansion plan for its Monlevade plant in Brazil amid a global slowdown and lower-than-forecast steel demand in the Latin American country. It also put on hold a $300 million expansion project at its Santa Catarina plant in southern Brazil.
Halted Output
Vale yesterday said production of iron-ore pellets will be halted at its Sao Luis unit in northern Brazil Oct. 8 and at the Tubarao I and Tubarao II plants in the country’s southeast Nov. 13, without saying how long the units will remain idle. The reduced processing of iron ore into pellets means output of sinter feed, a rawer form of the material, will expand, Vale said. Its press office in Rio declined to comment further.
“The company’s decision to shut down some of its pelletizing facilities is a clear indication of the deterioration in the market for high-quality iron-ore products,” Barclays Plc analysts led by Leonardo Correa said in a note to clients yesterday. Weakening demand for the pellets reflects a “drive of steelmakers to maximize cost savings,” they said.
Vale Chief Executive Officer Murilo Ferreira sold coal, manganese and logistics assets this year and is reviewing all of the company’s projects to cut costs as demand wanes amid the outlook for slower growth in China, the biggest buyer of iron ore. Ferreira said Aug. 16 that he will postpone a $3 billion potash project in Canada and may delay other investments to focus on expanding the company’s biggest mine.
Right Decision
The decision to sell units with lower returns is allaying concerns that slowing demand from steelmakers and declining prices for iron ore will pare profits.
“Vale is doing what it has to do,” Leonardo Brito, an equity analyst at hedge fund Teorica Investimentos, said in a telephone interview from Rio.
Iron ore, which accounts for about 90 percent of Vale’s earnings before items, declined to the lowest since October 2009 last month amid slowing Chinese purchases. Iron ore for immediate delivery to the Chinese port of Tianjin, a benchmark for Asia, was unchanged at $104.20 a metric ton today, according to a price index compiled by The Steel Index Ltd.
Morgan Stanley lowered its iron-ore price forecasts for 2013 and 2014 on slower steel production in China, the largest maker and consumer of the metal, Chief Metals Economist Peter Richardson said in a quarterly report yesterday.
Elsewhere
BHP Billiton Ltd., the world’s largest mining company, in August delayed about $68 billion of projects, including an iron- ore port expansion, amid sluggish global growth. Fortescue Metals Group Ltd. (FMG), Australia’s third-biggest iron-ore producer, on Sept. 4 cut its full-year spending forecast by 26 percent to $4.6 billion.
Steelmakers worldwide are trying to cut costs and one way of doing it is replacing pellets for lower grade iron ore, which is less expensive, HSBC’s Brandt said.
“Vale will sell more of a product that has a lower price so revenues will suffer,” he said in the interview. “Global steel producers are using lower quality grades to save a few bucks.”
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