UPDATE 2-Vale sees iron ore in $110-$160 range on China demand

Thu Apr 25, 2013 4:54pm EDT
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* High-cost producers to drop out if iron prices fall

* Vale sees recovering prices for base metals nickel, copper

* Gov't attentive to mining industry in regulatory reform

RIO DE JANEIRO, April 25 (Reuters) - Brazil's Vale SA , the world's second-largest mining company, said on Thursday it considers the Chinese iron ore market to be robust and that it will be difficult for the price of the main steelmaking ingredient to fall below $110 a tonne.

Demand for iron ore in China, the world's largest steelmaker and biggest consumer of iron ore, is being bolstered by production of pig iron and direct-reduction iron (DRI), Jose Carlos Martins, Vale's head of ferrous metals, said on a conference call with investors.

Pig iron and DRI - raw forms of the metal used primarily to balance the iron content in steel and other alloys - contribute about 70 million tonnes of demand to the Chinese iron ore market.

Vale has long said that if iron ore demand falls, high-cost producers will be pushed from the market, reducing supply and preventing further declines in prices. On Aug. 30, though, iron ore fell to 88.30, a three-year low. High cost Chinese steel producers also put an upper limit on prices at about $160 a tonne, he added.

"When prices reach about $160, they must cut production and that affects demand," Martins said. "When it drops below $110, iron ore supply is cut and prices adjust."

The conference call was held to discuss Vale's first-quarter results, which were released late on Wednesday. While profit at Vale fell 18 percent from a year earlier, shares of the company rose more than 3 percent on Thursday after sharp cost cutting limited the impact of lower sales.   Continued...