Vale to divide and conquer by lifting high-grade iron ore output – by James Wilson (Financial Times – May 10, 2015)

Vale is keen to build up its supply of higher-quality iron ore in a move that could increase pressure on some rival producers in the global market for the steelmaking commodity.

The Brazilian miner is one of a quartet of companies that dominate the global market in iron ore, where prices have plummeted over the past year as a glut of supply — mainly from Australian producers — has encountered weakening Chinese demand.

Vale’s recent indications that it would be prepared to hold back some supply have helped to arrest the slide in the iron ore price, while underpinning a rally in the company’s shares in the past month.

In an interview Luciano Siani, chief financial officer, did not rule out Vale cutting its growth plans for next year. The miner expects to produce 340m tonnes of iron ore this year and has previously estimated that 2016 output will be 376m tonnes.

However, Mr Siani said Vale would be likely to “push to the fullest” its production of the highest grade of iron ore, which commands a premium price from steelmakers. By contrast Vale would be more likely to “manage” its more “standard” iron ore supplies, he said.

“Maybe we will have several stories unfolding [in the iron ore market],” Mr Siani said. “We believe that the products will behave differently according to the segment.”

Vale’s plans for iron ore are important because a number of smaller companies are under severe financial stress and some have already been forced out of the market. The largest suppliers — Vale, Rio Tinto and BHP Billiton — are the lowest-cost global producers and expect to withstand a period of lower prices.

“The new normal is lower prices, there is no doubt about it,” Mr Siani said.

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