Goldman Sachs Sees Brazil January Iron Ore Exports Revival

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Friday, 06 February 2009

Brazilian mining giant Companhia Vale do Rio Doce (RIO) may have more reasons to be cheerful as iron ore exports picked up in January, according to a report by Sao Paulo-based Goldman Sachs analysts. Brazilian iron ore exports increased 27% in January to 17.5 million metric tons compared to December, the report said. Vale, as the company is also known, is by far the largest Brazilian iron ore exporter, sending around 100 million tons a year to China alone in 2007. It's also China's largest individual supplier.
However, the January figure was 29% down from January 2008 and lower than the average monthly volume of 23.5 million tons last year.
Goldman Sachs cautioned that a return to similar monthly volumes to 2008 will only return in late second quarter of 2009.
The report said the iron ore demand rebound has been sparked by de-stocking at steel mills "coming close to an end in China and well under way in Europe."
The bank said it expected the data would support investor confidence in Vale shares.
"We see an upside to our estimate for Vale 1Q 2009 iron ore shipments: we forecast shipments to be down 21% [quarter-on-quarter] when 1Q 2009 shipments would decline only 10% qoq if January volumes are repeated in February and March," the bank said.
Despite signs of a rebound in Chinese iron ore demand in January, Goldman Sachs believes European demand was likely to have been weak.
The bank noted that while China accounted for 34% of Brazilian iron ore exports last year, Europe took 28%.
The Goldman Sachs analysis of rising January demand for iron ore will be music to the ears of Vale.
The Brazilian company is widely believed to be involved in preliminary negotiations on setting the 2009 benchmark price for iron ore with Asian steel mills.
Vale has traditionally set the contract price for iron ore, which other suppliers have followed in recent years.
Vale has been delaying this year's benchmark talks, hoping the global economy will pick up, enabling it to seek higher prices as demand rises.
Chinese steel mills, for their part, will feel their bargaining power has diminished somewhat at Goldman Sachs' upbeat report on returning demand.
The mills have wanted to settle the benchmark ore price as soon as possible to lock-in current depressed ore prices.
Source: Dowjones Business News