Vale Urged to Increase Steelmaking Investments as Imports Rise

Vale SA, the world’s largest iron- ore producer, needs to do more to strengthen the Brazilian steel industry and help the country reduce its dependence on metal imports, Brazilian Budget Minister Paulo Bernardo said.

Vale is exporting record amounts of iron ore to China, the biggest steel-producing nation, because of soaring demand for the metal in construction and automobiles. At the same time, Brazilian imports of flat-rolled steel, the benchmark product, rose 25.9 percent in the first half from the same period last year, according to the Brazilian Steel Institute.

“We cannot be one of the biggest ore producers and ship it all abroad and end up importing steel,” Bernardo said in an interview yesterday in Brasilia.

Vale, based in Rio de Janeiro, increased its stake last month in a steel joint-venture with Duesseldorf, Germany-based ThyssenKrupp AG in Brazil and aims to develop three more steelmaking projects in the South American country, Vale Chief Financial Officer Fabio Barbosa said July 30. The four projects may be able to produce a total of 18.5 million metric tons a year, equivalent to about half Brazil’s current capacity.

Vale Chief Executive Officer Roger Agnelli said July 22 that the company is investing 965 million euros ($1.4 billion) to more than double its stake in the Cia. Siderurgica do Atlantico SA venture with Thyssen Krupp in Rio de Janeiro state to 26.9 percent from 10 percent.

Slowing Demand

Vale is prepared to invest to get the mill started as steelmakers worldwide struggle with slowing demand, Agnelli said. CSA, a 5.5 billion euro investment and the first integrated steel mill to be built in Brazil for over two decades, is planned to start next year. Vale also has signed accords for new steel projects in Brazil’s Para and Ceara states since August last year.

“Vale’s strategy has always been to take minority stakes in steelmakers to encourage steelmaking growth in Brazil and guarantee a permanent sale for its ore in Brazil, which is a captive market,” said Bernardo Lobao, an analyst with BNY Mellon ARX Investimentos in Rio.

A Vale spokeswoman, who declined to be identified citing company policy, said the company is continuing to invest in steelmaking in Brazil.

Vale shipped a record 32.6 million metric tons of iron ore to China in the second quarter, equivalent to 66 percent of its total shipments, compared with 8.2 percent for Brazil, 6.3 percent to Japan and 4.2 percent to South Korea.

China Exports

Exports of steel from China were singled out by the Brazilian Steel Institute, known as IBS, as one of the underlying causes of rising steel imports into Brazil since last year, according to the institute’s Vice President Marco Polo de Mello Lopes.

Brazil’s government isn’t seeking to take over Vale, Bernardo said, denying a report in Veja magazine on Aug. 1 that President Luiz Inacio Lula da Silva wanted to seize control of the company.

“We don’t seek control over Vale, but it is worth remembering the government has a significant share of the capital,” Bernardo said in the interview. Previ, the pension fund of state-controlled Banco do Brasil SA, is the majority shareholder in Valepar SA, Vale’s controlling shareholder.

The government also holds 6.9 percent of Vale’s voting capital via state-controlled development bank known as BNDES.

Vale shares fell 73 centavos, or 2.2 percent, to 32.34 reais in Sao Paulo trading. The stock is up 35 percent this year compared with a 48 percent gain in the benchmark Bovespa index.