Vale SA (VALE5), Brazil’s largest exporter, said further local currency depreciation could counter cost rises and a slowdown in Chinese iron-ore demand as it seeks to regain market share from Rio Tinto Group and BHP Billiton Ltd. (BHP).
The real, the worst-performing emerging-market currency in the past three months, probably will weaken to about 2.40 from 2.15 per U.S. dollar, bolstering Brazil’s competitiveness, said Jose Carlos Martins, Vale’s executive director for ferrous and strategy. China’s iron-ore and steel demand growth is set to slow to about 5 percent from 10 percent in the first five months of the year, he said.
“The Brazilian currency will devalue further,” Martins, 63, said in a June 14 interview at the company’s Rio de Janeiro headquarters. “The slowdown in China is negative, devaluation is positive because not only our costs in dollars will be reduced but also investments will be lower.”
Vale is seeking to return to profit growth and boost investor confidence by cutting costs, selling assets and focusing on the iron-ore business, its most lucrative unit. The company, the worst-performing major mining stock this year, posted first-quarter profit that surpassed analysts’ expectations for the first time in eight quarters.
The real lost 7.8 percent against the dollar in the past three months through yesterday to the weakest level in four years as faltering economic growth and speculation the U.S. Federal Reserve will pare back monetary stimulus lures money away from Latin America’s biggest economy. The Brazilian currency depreciated 0.9 percent to 2.1712 per dollar today, the weakest level since May 2009.
Forecasts Cut
May industrial production in China, where Vale sells almost 50 percent of its iron ore shipments, grew a less-than-forecast 9.2 percent from a year earlier, the weakest increase in the first five months of the year since 2009. China’s economic expansion held below 8 percent for the past four quarters, the first time that has happened in at least 20 years.
The world’s biggest metals consumer is expected to expand 7.8 percent in 2013, according to the median estimate in an economists Bloomberg survey last month, down from an 8 percent pace forecast in April. The World Bank reduced its forecast to 7.7 percent from 8.4 percent in a June 12 report.
China can grow 7 percent to 8 percent for the next two or three years as the economy shifts toward consumption and away from infrastructure, said Martins, who estimates he’s spent a total of a year and a half in China since joining Vale in 2004.
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