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Vale seen posting record iron ore output
Source:Sydney Morning Herald   Time:2017-07-20 11:10:27

The reigning iron-ore king Vale is expected to set another quarterly production record, giving investors more to ponder in what has been a seesawing year for the main steel-making ingredient.

On Thursday, the Rio de Janeiro-based company probably will report second-quarter output of 91.4 million tonnes, including third-party purchases, up from 86.8 million a year earlier, according to the average estimate of six analysts surveyed by Bloomberg News.

Vale is coming off its biggest-ever production year, churning out 348.8 million tonnes in 2016. It's projecting 360 million to 380 million tonnes this year for an even bigger share of the market. The record-setting pace has been fuelled by the development of low-cost reserves in northern Brazil, including ramping up the industry's biggest project, S11D.

While the rise in Vale's output has been steady, prices haven't been. Iron ore rallied to almost $US95 a tonne in February before tumbling to $US53 in mid-June as glut fears resurfaced. Now prices are back above $US70 after an up-tick in demand from Chinese steel mills.

With Vale and its main competitors Rio Tinto Group and BHP Billiton keeping the market well-supplied, iron ore probably will come back down to average $US47 next year, Goldman Sachs said in a June 29 report.

There are signs of supply-side discipline. Rio Tinto reduced its 2017 guidance on the heels of a second-quarter production dip. Wet weather in Western Australia impacted Australian shipments, according to UBS Group analysts.

Rio Tinto's reduced output could help prop up prices as China is on pace to easily import more than 1 billion tonnes of iron ore this year as steel prices rise and the world's largest mineral consumer posted strong economic growth.

How much iron ore Vale produces this quarter may not tell the whole earnings story. Besides often locking prices in several weeks in advance, the company sells about 40 per cent of its ore at a premium price due to its high quality. Additionally, the miner has been building up offshore blending inventories to properly take advantage of the company's product.

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