Iron ore mining giant Vale SA just delivered a stark, three-pronged warning: first, this year’s dramatic run-up isn’t fully justified by the fundamentals; second, watch out as low-cost supply is set to pick up; and third, the Brazilian company is ready to compete at any price level.
“We’ll have to prepare for tougher periods,” Claudio Alves, global director of iron ore marketing and sales at the Rio de Janeiro-based company, told an industry conference in Singapore on Thursday. “The price less than one month ago was more than $70. When you come back three months ago, it was $38. This shows there’s a big volatility.”
Iron ore surged in the three months to April as indications of firmer demand in China helped to ignite a speculative frenzy among local investors. That prompted regulators and exchanges to step into the fray as they tightened rules to quell the outburst and cool prices off.
Vale, the world’s top producer, as well as rival Australian BHP Billiton Ltd. flagged prospects for more low-cost supply at the gathering, with Alves saying his company’s 90 million ton S11D project will start supplying ore from the final quarter of 2016.
“We still see some additional capacity coming into the market,” Alves said, forecasting that S11D may produce between 30 million and 40 million metric tons next year, reach 80 percent of capacity by 2018 and full capacity the year after. “This will present some pressure in terms of price,” he said, referring to output expansions industrywide.
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