Vale sees iron ore prices coming back to historical levels

Vale sees iron ore prices coming back to historical levels

Vale's CEO Murilo Ferreira sees iron ore prices favouring the business soon.

Brazil’s Vale (NYSE:VALE) chief executive officer Murilo Ferreira said Thursday prices for the steel-making ingredient would climb up back to historical levels in the second half of the year lifted by a flurry of restocking activity in China.

Ferreira, at the helm of the world's largest iron ore producer since May 2011, told Notícias de Mineração (in Portuguese, subs. required) Thursday the market had softened as a result of the additional supply introduced by Australian major producers over a relatively short period. However, he sees that trend ending soon.

Most analysts disagree, as they don’t see history repeating itself. Unlike 2012, the seaborne iron ore market is in surplus and inventories in many parts of the steel supply chain are high or in line with historic norms, they say.

“Over the last weeks or so, the iron ore price has shown signs of hitting a temporary buffer as an improvement in demand and some moderate restocking triggered a flurry of short covering in the swaps market,” Credit Suisse said in a report earlier this month.

According to Morgan Stanley, ore prices may fall to $90 a ton in 2015 and $87 a ton in 2016 as credit restraints and uncertainty surrounding China’s property market mean steel mills may be reluctant to carry out large-scale re-stocking.

Humble recovery

Iron ore prices rose to its highest level in more than a month last week, after dropping to within a whisker of a two-year low in June to hit $89 a tonne.

On Thursday, benchmark ore, with 62%t iron content, for immediately delivery into China was trading at $98 a tonne, according to data compiler Steel Index Wednesday.

The ore has dropped 27% so far this year.