Brazilian miner Vale is to slow and limit the development of its flagship iron ore project, in the latest sign of the industry putting profits ahead of volume and market share. Peter Poppinga, head of Vale’s iron ore business, said the market had not understood its plans for the ramp-up of S11D, the industry’s biggest new venture, in the Amazonian state of Pará. “One thing the market is not getting right is how Vale wants to go about ramping up S11D,” he said. “We decided for a phased approach where we will ramp up S11D not in two years but in four years.” While S11D was seen as a 90m tonnes per year project, the capacity of Vale’s infrastructure in northern Brazil meant it would only add another 75mt of the steelmaking ingredient to a market that has suffered a glut of supply. “We are not [in] the pure volume game. We think the right approach … is to maximise our margins,” said Mr Poppinga in an interview in London. During the so-called commodity supercycle, mining companies ploughed billions of dollars into new iron ore projects as China’s rapid urbanisation saw it suck in ever increasing amounts of the raw material. But much of the new supply only came online as China’s growth started to slow, hitting prices that — at roughly $55 a tonne — are down some 70 per cent from their 2011 highs. While most of the large suppliers including BHP Billiton and Rio Tinto still have plans to increase production, they are prioritising returns and profitability over volume. Once its expansion plans are complete, Vale would have capacity to produce 450mt of iron ore annually. “But it doesn’t mean that we are going to use it,” said Mr Poppinga, who forecast that iron ore will trade at $50-$60 a tonne next year. “It will be with a mature eye on the market and we will always have a focus on the maximisation of our margins,” he said. Vale, based in Rio de Janeiro, is seeking to cut its net debt by at least $10bn by the end of next year by disposing of non-core businesses and other initiatives. 75m Additional tonnage provided by S11D As well as the downturn in commodity prices, it has been dealing with the fallout from one of its worst mine accidents. The company and BHP Billiton were partners in the Samarco iron ore venture in Brazil where 19 people died when a dam collapsed last November. While initially the companies hoped they might be able to resume production at Samarco this year, those hopes have been dashed by the complexity of obtaining permission for a restart. “Optimistically we are looking at mid-2017; realistically we are looking at something in the second half of 2017,” Mr Poppinga said. We are not [in] the pure volume game. We think the right approach … is to maximise our margins The companies still face potential legal action in Brazil relating to the dam collapse, which a technical report last month said was due to design and drainage problems. Mr Poppinga said Vale was still interested in a venture with another iron ore miner, Australia’s Fortescue Metals Group, to combine some of their output for sale. A project to blend Vale and FMG ore could produce a mix more suitable for some customers, allowing them to share gains from a premium price for the blend. “We have tested everything … [but] on the commercial side it is taking longer than we expected,” Mr Poppinga said. Sample the FT’s top stories for a week You select the topic, we deliver the news. Source link