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iron ore production cuts

  1. 716 Posts.
    How long before Rio and BHP follow?

    Vale slashes iron ore production
    November 1, 2008 - 8:51AM

    The world's top producer of iron ore will cut its annual ore production by 30 million tonnes as demand for steel crumbles because of the global economic crisis.

    Brazil's Vale said yesterday steel companies across the globe have cut production on average by about 20% for 2008, and chief executive Roger Agnelli said some have slashed production as much as 40%.

    Stalling demand for iron, the world's most common metal used to make everything from sewing needles to oil tankers, reflects a broad economic slowdown.

    Vale predicts a 9% reduction of its 2008 annual production forecast of 325 million tonnes of iron ore, the raw ingredient for making steel. Vale, the planet's second-largest miner after BHP Billiton, will also reduce output of nickel and aluminium.

    Mr Agnelli said steel demand may start picking up in the second quarter of next year, but that no one knows for sure because the global credit crunch is so severe that it has crushed sales of everything from cars to steel beams.

    "There are some parts of the world where people don't want to buy anything,'' Mr Agnelli said. "Nothing, nothing, nothing.''

    Vale said that beginning tomorrow, it will shut down some mines that carry a higher cost with lower quality output in the Brazilian state of Minas Gerais. Employees will be sent home with pay, and Vale did not indicate how long the shutdowns will last.

    The company will keep a ferroalloy plant in France idled until April, and a plant in Norway will extend its furnace maintenance until June. The two extended closures will result in a production cut of 600,000 metric tonnes of manganese ore and 90,000 metric tonnes of ferroalloy.

    The global industrial production slowdown has led to a drop in demand for base metals such as nickel and aluminum, which is already reflected in declining prices and rising inventories.

    Vale said two pellet plants representing about 20% of the company's total nominal capacity will be shut down for maintenance, and its manganese ore and ferroalloy operations in Brazil will be shuttered from December through January.

    Vale also is discontinuing its use of higher-cost thermal power generation in Indonesia, resulting in a 20 per cent reduction, or about 17,000 tonnes, of nickel-in-matte output. Its nickel refinery in Dalian, China, will continue running at 35% of its nominal capacity.

    One of the company's Rio de Janeiro aluminum smelters, Valesul Aluminio, will cut back to a limit of 40% of its nominal annual capacity of 95,000 tonnes, and production at its Cadam subsidiary will be reduced by 30% because of falling demand for kaolin for paper coating.

    Mr Agnelli said he could not predict how much the cuts will affect the company's financial outlook at this point because the world economic situation is so volatile.

    "We don't have clarity on anything,'' he said. "There's no way to know.''

    But the company said in a statement that the production cuts "will contribute to minimise risks of much larger future costs to our shareholders, employees and the communities where we operate.''

    The company will maintain its plan to invest $US14.2 billion ($22 billion) in operations next year, but Mr Agnelli has said that Vale's 2010 investment plan could be altered.

    Vale last week reported that third-quarter net income rose 64% due to record shipments of iron ore and pellets - before the global economic crisis.

    Under US accounting rules, net profit for the July-September period hit $US4.8 billion, up from $US2.9 billion in the third quarter of last year.

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