Vale says China, iron ore suppliers are mutually dependent

China can’t afford to abandon key iron ore suppliers because the world’s largest buyer of the raw material is dependent on foreign deliveries of the steelmaking ingredient, according to a top Vale SA executive.

The Chinese government established China Mineral Resources Group in 2022 to centralize ore purchasing and concentrate the Asian nation’s bargaining power with heavyweight suppliers such as BHP Group, Rio Tinto Group and Vale.

Beijing’s push to centralize purchases is roiling the market. CMRG has clashed with BHP by prompting a ban on dollar-denominated cargoes. The dispute risks disrupting shipments from the world’s largest miner to its main market.

“It’s not in anyone’s interest to strain this situation because it could lead to a breakdown in the supply chain, which would be negative for everyone,” Vale chief financial officer Marcelo Bacci said during a press conference Friday.

Vale shares rose as much as 2.7% in Sao Paulo after the company reported solid third-quarter results and signaled plans to expand investor payouts.

The Brazilian mining titan doesn’t have long-term contracts or fixed pricing arrangements with CMRG, Bacci said.

CMRG said earlier this week the way the industry sets prices is “irrational” and vowed to address what it called a value imbalance between miners and steelmakers. The company’s research arm said the current market mechanism is “unfair and unreasonable” and driving prices higher.

Vale has a “pretty positive relationship” with CMRG, Bacci noted. The Rio de Janeiro-based company has offered solutions to logistic issues raised by the state-backed entity.

“We have optimized distribution costs, delivering products of the highest quality to the ports that are most convenient for them,” Bacci said. “These are operational issues that do not affect the price so much, but greatly improve the customer’s life.”

He added: “Obviously, they are very important to us, but we are also important suppliers to them, and we believe that it is in our mutual interest to continue with this positive relationship.”

(By Mariana Durao)