By Paul Kiernan
RIO DE JANEIRO--Brazilian mining company Vale SA (VALE,
VALE5.BR) on Thursday reaffirmed its view that iron-ore prices
cheaper than $110 per ton are unsustainable, despite a supply shock
that has kept prices below that level for more than three
months.
Vale, the world's largest producer of iron ore, reported
second-quarter results in which its average sales price for the
commodity was the lowest in more than four years. Benchmark prices
for iron ore on the spot market have failed to break the $100 mark
since late May.
The decline is testing Vale executives' long-held thesis that
such prices will eventually force high-cost mines in China out of
business, re-balancing the market without depressing prices.
Mining companies in Australia ramped up production faster than
expected in the first half of the year, adding roughly 90 million
metric tons of ore to the global export market and driving down
prices.
Vale, the world's largest iron-ore producer, had previously
forecast supply growth of 120 million tons for all of 2014. The
company raised that estimate to 140 million tons Thursday.
Slower production increases in the second half of 2014 should
allow demand to catch up, Jose Carlos Martins, Vale's executive
director for ferrous and strategy, said in a conference call
Thursday.
"Demand rises steadily and production grows in spurts," Mr.
Martins said. "The market will become a bit less oversupplied in
the second half of the year, and with that, the price outlook
improves."
He declined to give a more precise forecast. Iron-ore prices at
Chinese ports Thursday settled at $95.60 per metric ton, according
to industry website The Steel Index.
But Mr. Martins noted that the average benchmark iron-ore price
this year has still been $109 per ton.
"It's not far from $110. So that is still a good reference,
although it can oscillate between a little bit more and a little
bit less," he said.
Write to Paul Kiernan at paul.kiernan@wsj.com
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