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