RIO DE JANEIRO--The world's largest iron-ore producer gave the
strongest signals yet Thursday that it could temper output in the
face of an oversupplied global market.
Peter Poppinga, head of the ferrous division at Brazil's Vale
SA, said that while the company remains committed to increasing its
annual iron-ore capacity to 450 million metric tons in a few years
from around 350 million tons now, it may idle up to 30 million tons
of higher-cost production. He reiterated that the strategy was
"new" and came in addition to an existing plan to buy less ore from
third parties.
Vale and fellow iron-ore majors Rio Tinto PLC and BHP Billiton
PLC have been criticized by smaller rivals and many analysts in
recent months for increasing their output of the steelmaking
ingredient despite stagnating demand from China, the world's main
market. Together the three companies account for some 60% of global
iron-ore exports, and all have continued to invest in new supply
even as prices collapsed in recent months.
The Brazilian company has faced heat for plowing ahead with a
particularly costly, $16.4 billion expansion of its Carajás mining
complex in the Brazilian Amazon. Company executives on Thursday
again brushed aside suggestions that they might stretch out the
project's timeline.
"I would like for us to differentiate between having a certain
capacity and utilizing it," Mr. Poppinga said in a conference call
with analysts. "We can now optimize our operations. That makes it
possible to paralyze some higher-cost, lower-quality production
flows in these systems, obviously depending on market conditions
and consistently pursuing our objective of margin
optimization."
That didn't happen in the first quarter. Vale set a record for
iron-ore production but sold it at roughly half of last year's
prices, contributing to a substantial deterioration of profit
margins. Earnings before interest, taxes, depreciation and
amortization, or Ebitda, plummeted 61% from the first quarter of
2014 to $1.6 billion, as net revenues declined 34% to $6.24
billion.
Mr. Poppinga said Vale would be most likely to start cutting
output at its complexes in the southeastern Brazilian state of
Minas Gerais, where decades of extraction have left mines depleted
of high-grade ore. The company plans to gradually substitute this
with output from the Carajás region, home to perhaps the world's
largest remaining deposit of top-quality iron ore.
While it may be the biggest, Vale is not the first big iron-ore
producer to waver amid the downturn in prices. BHP Billiton said
last week it was "deferring" a port project needed to increase its
production capacity to 290 million tons a year.
Write to Paul Kiernan at paul.kiernan@wsj.com
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