Brazil’s Vale: Outlook for Iron Ore Hasn’t Changed – by Paul Kiernan (Wall Street Journal – July 1, 2013)

RIO DE JANEIRO–Brazilian mining giant Vale SA VALE -1.36% hasn’t seen China’s appetite for iron ore weaken despite the recent tumult in global markets and hopes to follow through with costly expansion plans despite skepticism from some quarters.

Slowing Chinese growth and the possible withdrawal of easy-money policies in the U.S. have sent the dollar higher against other currencies such as the Brazilian real and raised concerns about demand for commodities. Worries about the world’s second-largest economy have weighed particularly heavily on Vale’s shares, which are trading near four-year lows.

But Jose Carlos Martins, Vale’s executive director of ferrous minerals and strategy, said the company has felt “no negative impact in terms of demand” and sees a silver lining in the recent depreciation of the Brazilian real. Vale, the world’s number three mining company and top producer of iron ore, mines the key steel ingredient in Brazil and sells most of it abroad, at dollar-denominated prices.

“Putting everything together–the positive and negative effects of all this confusion–the truth for us is that we haven’t had big changes in the scenario for iron ore,” Martins said in an interview. He noted China’s renminbi is “one of the only currencies in emerging countries that hasn’t suffered,” meaning Vale’s costs relative to Chinese iron-ore producers have declined.

Still, Vale’s preferred shares are down 34% this year, having underperformed Brazil’s Ibovespa stock index as well as rival mining majors BHP Billiton BLT.LN -0.12% and Rio Tinto RIO -1.42%. While analysts said the Brazilian government’s long-awaited proposal for new mining legislation in June reduced some downside risks, the news provided only brief respite for Vale’s shares.

The stock has been highly sensitive in recent months to economic data from China, its biggest market, which produces half the world’s steel and sets global benchmark prices for iron ore. Investors fear an ongoing effort by Chinese authorites to shift their economic model toward consumption and away from investment could deal a blow to growth and undermine demand for metals.

Martins, who travels frequently to China and believes he knows it “better than a lot of analysts,” says the country’s high savings rate will give its government flexibility as it adjusts economic policy.

“In spite of all the problems, what I see from the Chinese authorities is an extraordinary pragmatism when it comes to the economy,” he said. “Even now, with the whole world worried about liquidity, they squeezed liquidity. And it’s an absolutely orthodox measure that not even the boys in Chicago would have done.”

For the rest of this interview, click here: