By Paul Kiernan

RIO DE JANEIRO--Brazilian mining company Vale SA said Wednesday that China's huge steel industry "may become less buoyant" in coming years as the country's economic growth gradually slows to 6% and reform measures put the brakes on infrastructure development.

On the upside, growing concerns about pollution should force Chinese steelmakers to shut down inefficient mills and seek better raw materials, raising premiums for the high-grade iron ore Vale extracts from its mines in Brazil.

Vale has a large finger on the pulse of China's economy as the world's largest producer of iron ore, a key component in steelmaking. The Asian country produces around half the world's steel and is Vale's biggest customer, accounting for 38.6% of the Brazilian company's $49 billion in revenue last year.

"Due to reforms, the Chinese steel industry may become less buoyant compared to its vigorous growth of 8% year-on-year in 2013," Vale said in its fourth-quarter report. Fast-paced infrastructure development, which has underpinned steel demand for much of the past decade, will likely slow as authorities tighten their control of local-government indebtedness.

"On the other hand, the property sector is expected to continue to grow supported by the ongoing urbanization process," Vale said. "The automotive sector also has room to expand. Demand for equipment and machines will also grow as labor costs increase in China and lead firms to replace workers."

Despite growing production of iron ore in Australia--where Vale's main rival, Rio Tinto PLC, operates--the company said it expects the iron-ore market to "remain balanced" this year as some high-cost producers in China likely shut down. Global steel output is seen rising around 4% in 2014.

Vale reiterated its view that China's reform program will be carried out smoothly, "without major disruptions in any sector," allowing for 7.5% economic growth this year.

"We expect China to grow around 7% in the [following] couple of years, with a gradual deceleration to 6% thereafter," Vale said.

Write to Paul Kiernan at paul.kiernan@wsj.com

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