Vale, the world's largest iron ore producer, said on
Thursday it is selling 80 percent of its ore using spot prices, nearly
completing a historic shift to market-based pricing for the principal raw
material used in steel.
The new system was prompted by Chinese steelmakers, Vale's
largest client group, who wanted to benefit more quickly from falling iron ore
prices. Iron ore averaged $141.80/MT in the fourth i.e. 11 percent less than a year earlier and 20
percent less than the previous quarter.
While construction, a major source of demand for steel, has
slowed because of Chinese efforts to cool their real estate market and because
of seasonal construction slowdowns during the Chinese winter, Vale expects
demand for steel and ore to pick up in the second half.
Demand will be driven by China's plan to build 10 million
new units of affordable housing for middle and lower income families, Martins
said.
The new pricing system has however put pressure on Vale to
increase efficiency as rivals BHP and Rio Tinto, whose Australian mines are
closer to China, have a transport cost advantage over Brazilian producers,
Martins said.
The main means for Vale to cut transport costs, the
construction of a fleet of giant “Valemax” ships, ran into trouble in
January after China refused permission for the 400,000 deadweight tonne
vessels, some of the largest afloat, to dock in local ports.
Vale is working with Chinese authorities to end the ban but
a solution will take time, Martins said
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