04-08-2017

The Iron Ore Market Is in a ‘Sweet Spot’ Right Now

iron

The world’s biggest producer of iron ore says the industry is enjoying a Goldilocks moment with prices generating a tidy profit but not enough to lure much new supply.

“The market is in a sweet spot right now from $60 to $70,” Vale SA Chief Financial Officer Luciano Siani Pires told Bloomberg Television Thursday. “It is a price which does not incentivize too much swing capacity to come back and it’s a very profitable range for major mining companies.”

Prices of the steel-making ingredient have see-sawed this year, rallying to $95 in February before tumbling to $53 in mid-June as glut fears resurfaced. Now they’re back above $70 after an up-tick in demand from Chinese steel mills. But prices probably will average $50 in the final three months as falling steel prices hurt mills’ margins, according to Barclays Plc. India’s JSW Steel Ltd. said this week that prices may go as low as $40.

Vale disagrees. It’s betting prices will stay in a $60 to $70 range for the rest of the year supported by still “very strong” demand and supply “that is a little more tame,” Siani Pires said from Bloomberg’s Rio de Janeiro office.

For Vale — even more so than its main rivals, Rio Tinto Group and BHP Billiton Ltd. — the differences in price outlook are a big deal. Each $1 drop in iron ore has a $350 million impact on the Brazilian company, the CFO said. That in turn affects it’s ability to bring down a whopping $22 billion debt load and return cash to shareholders.

Still, the company is prepared for Chinese demand growth to return to “more normalized” levels from the current rate of about 5 percent, he said.

Source: Bloomberg

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