Vale vs IMF: Who are you going to believe?
China bulls have been pouring over comments made by the CEO of Vale, the world's number one iron ore producer, on Wednesday, a day after the IMF issued a dire warning for commodity investors.
Murilo Ferreira told reporters at company HQ in Rio de Janeiro: "Those who have been betting against Chinese growth since the 1990s will be wrong again. China is just getting going."
Strong words from a company that has seen iron ore imports by China, its biggest customer, slump more than 9% last month. Vale, BHP Billiton and Rio Tinto completely dominate the 1 billion tonne seaborne iron ore trade – Vale alone controls more than a quarter of world supply.
The steelmaking ingredient is a good indicator of overall economic activity and news of the worse than expected decline came on the same day as the IMF predicted that commodity prices will decline during 2012-13 adding that "sizeable downside risks to global growth also pose risks of further downward adjustment in commodity prices."
China dominates the global trade in just about every commodity including iron ore (representing more than half of world trade), copper (38%), coal (47%), nickel (36%), lead (44%) and zinc (41%).
The import price of 62% iron ore fines at China's Tianjin port was $148.70 at tonne on Wednesday, up $10 from the end of last year and more than 27% off lows struck in October last year.
The IMF's economists are certainly not alone with predictions of a Chinese slowdown – China having become the primary driver of global growth for almost a decade now.
In March, the China government set a target of 7.5% economic growth this year. China recorded GDP growth of 9.2% in 2011 and annual growth has averaged 10.4% since 2001, peaking in 2007 at 13%. The last time expected growth was pegged at below 8% was 2004.
But using the dismal science to make forecasts and taking risks with real money are two very different things. And Vale is definitely putting its money where its mouth is.
Ferreira pointed out to Reuters that Vale is planning to invest more than $50 billion to expand production of iron ore (to a staggering 400 million tonnes per year), potash, coal, base metals and other resources including rare earths:
Of that, $35 billion will be spent over four years to complete its 20 biggest projects, Ferreira said. Vale has already spent $13.5 billion on those mines.
Another $19.5 billion is expected to be approved by the Rio de Janeiro-based company's board later this year for the 90-million-tonnes-a-year Serra Sul iron-ore mine project in Brazil's Amazon, he added. Serra Sul should start operations in 2016.