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Monday, 01/18/2010 6:30:13 PM

Monday, January 18, 2010 6:30:13 PM

Post# of 188583
Vale to Grab Ore Share From BHP, Rio as Demand Surges (Update3)
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By Diana Kinch

Jan. 18 (Bloomberg) -- Vale SA, the world’s biggest iron- ore miner, may win back market share from rivals BHP Billiton Ltd. and Rio Tinto Group because it can boost exports faster as demand for the steelmaking raw material surges to a record.

Vale will likely take 28 percent of the iron-ore market this year, the most since 2007, when its stock rose 88 percent, according to Barclays Capital analyst Leonardo Correa. Output may rise 24 percent to 313 million tons as it expands existing mines and restarts shuttered plants, Credit Suisse said.

Rio de Janeiro-based Vale will benefit as higher steel output in China drives global iron-ore demand to a record 1 billion tons this year, Correa said in an interview. Higher sales and contract price gains of as much as 50 percent may boost the shares 11 percent, based on analysts’ forecasts.

“It’ll be a very positive year for the company,” Pedro Galdi, an analyst with SLW Corretora in Sao Paulo, said in a Jan. 12 telephone interview. “During the crisis, Vale carried on investing heavily to increase capacity.”

Vale will boost exports by more than BHP and Rio as it resumes output that it closed down because of the financial crisis and expands its Carajas iron-ore mine in Brazil, Credit Suisse analyst Ivan Fadel said. Carajas, location of the company’s highest-grade ore, will add about 10 million tons.

The company’s share of global iron-ore sales fell to 26 percent last year from 31 percent in 2007 as Australian and Indian producers benefited from cheaper transport costs because of their closer proximity to China and Vale’s traditional European customers scaled back purchases as demand slumped.

Record Demand

Vale shares will gain 11 percent, based on the average 12- month price target of 16 analysts compiled by Bloomberg. That compares with a 5.9 percent increase for Rio and 4.3 percent for BHP, according to estimates.

Vale depositary receipts fell 20 cents, or 1.1 percent, to 18.025 euros as of 10:04 a.m. in Frankfurt trading. The shares have climbed 75 percent in the past year in Sao Paulo, compared with a 76 percent gain for Brazil’s benchmark Bovespa index.

Rising demand may help Vale, Rio and BHP -- which control more than two-thirds of the seaborne iron-ore market -- win price increases of 50 percent in annual contract negotiations, following price reductions of as much as 33 percent in 2009 during the crisis, according to forecasts from Nomura Holdings Inc. and Bank of America Merrill Lynch.

‘Looking to Recover’

“Iron-ore producers will be looking to recover what they lost in 2009,” Credit Suisse’s Fadel said in a telephone interview from Sao Paulo.

A spokeswoman for Vale, who can’t be named because of company policy, declined to comment on market share.

Commodity producers are benefiting as China’s exports surged 17.7 percent in December and U.S. manufacturing expanded at the fastest pace in more than three years. The steel market will grow by 9.2 percent in 2010, on rising demand from the U.S., Japan and Europe, the World Steel Association has said.

This year, Vale will boost exports more than 20 percent to almost 280 million tons, Fadel said. Australian producers may increase exports 9 percent to 394 million tons this year, Canberra-based Australian Bureau of Agricultural and Resource Economics said in December. A new export tax may curtail shipments from India, the third-largest exporter.

Melbourne-based BHP will begin building the sixth stage of its Rapid Growth Project this year, boosting iron ore export capacity to 240 million tons, Port Hedland Port Authority Chief Executive Officer Andre Bush said on Jan. 6. BHP and Fortescue Metals Group ship iron ore through the port.

BHP is considering further expansion plans to 350 million tons a year, according to a presentation by the head of its iron ore unit Ian Ashby in August. BHP spokeswoman Samantha Evans declined to comment when contacted today.

Spending Plans

Rio has capacity of 220 million tons in Western Australia and is considering expanding that to 330 million tons, according to an investor briefing transcript on its Web site. BHP and Rio last year agreed to combine their Western Australian iron ore operations, in a move that will save the companies at least $10 billion. Rio spokesman Tony Shaffer declined to comment today.

Vale is spending a record $12.9 billion this year as it seeks to boost iron-ore output to 450 million tons a year by 2014, Chief Executive Officer Roger Agnelli said in October.

The company is operating at full capacity of about 310 million tons a year, after cutting 30 million tons from output during the financial crisis. The expansion at Carajas is set to start in the first half of 2010, Vale said Oct. 19.

Rising Market

BHP and Rio cut output less during the market downturn -- idling capacity of 5 million and 10 million tons respectively -- which has ready been brought back online, said Gilberto Cardoso, an analyst with Banif Securities in Rio de Janeiro.

“Vale will increase sales into a rising market more than the Australian miners,” Cardoso said in an interview on Jan. 12. “The global market is ready to absorb that capacity.”

The Bovespa fell 1.8 percent last week, led by Brasil Telecom SA, which declined 14 percent. MMX Mineracao & Metalicos SA rose the most, gaining 7.3 percent.

The yield on the government’s zero-coupon bonds due January 2011 rose 0.5 basis point, or 0.005 percentage point, to 10.32 percent, according to Bloomberg data. Brazil’s real weakened 2.7 percent to 1.7723 per U.S. dollar from 1.7263 on Jan. 8.

The following is a list of events in Brazil this week:

Event Date
Weekly Trade Balance Jan. 18
Tax Collections Jan. 18-22
CAGED Formal Job Creation Jan. 18-22
FGV Preview Inflation IGP-M Jan. 19
Current Account - December Jan. 20
Foreign Investment - December Jan. 20
Private Bank Lending - December Jan. 21
CNI Capacity Utilization - November Jan. 21
IBGE CPI IPCA-15 - MoM Jan. 22

To contact the reporter on this story: Diana Kinch in Rio de Janeiro at dkinch1@bloomberg.net
Last Updated: January 18, 2010 07:20 EST

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