November 28, 2011 / 10:50 PM / in 6 years

Vale iron ore head sees Asia driving steel

NEW YORK (Reuters) - Iron ore will continue to sell in the range of $120 to $180 per tonne in the near term, while China, a driver of Asian steel consumption, constrains its economy in the face of inflationary threats, a senior executive of Brazilian mining giant Vale VALE5.SAVALE.N said.

But the market for the key ingredient for steel manufacture is expected to grow as Asia builds up its infrastructure and Western steelmakers stagnate, Jose Carlos Martins, Vale’s executive director for iron ore and strategy told Reuters.

“For the bigger part of this year, the price was around $180,” he said. “I don’t believe in the next year the price will go above 180 or below 120. The scenario is moderate to good.”

Earlier, Vale slashed its capital spending budget for 2012 by 11 percent and pushed back its largest iron ore project by two years in the face of falling commodities prices and environmental delays.

During an interview at the New York Stock Exchange where the company’s executives met Wall Street investors, Martins said global steel production was a tale of two halves of the world since the 2008 recession.

”In Europe and America, in the western world, the market has kind of stagnated. Steel production in the western world is 15 to 20 percent below pre-crisis levels. So the western world has never recovered,“ Martins said, noting there was a new round of financial restraint, ”which is not good for steel consumption because it’s very much related to construction and infrastructure.

“Those countries don’t have enough space to promote growth, so we do not see the western world moving, probably it will be stable,” he said.

But in contrast, he said China was the main factor behind steel consumption growth in Asia.

“China is facing an inflationary environment, so they put a lot of constraints in the economy to prevent inflation going up. The whole scenario is not that good as far as steel production is concerned, or iron ore.”

But on the other hand, when the price reaches that low level of $120, many high-cost Chinese mines cannot keep operating, so steelmakers will buy iron ore from abroad.

“I believe $180 is the limit on the upside, but I believe the price will move more in the downside area than the upside,” said Martins. “But it’s very difficult to say, as China is very unpredictable.”

The difference between China and the West, is that China has a lot of room for maneuver.

“That’s the reason I am moderately optimistic,” he said, noting global steel consumption and production is going up.

“Before the crisis, steel production in Europe and the western world was down by 20 percent, but in Asia it was up by 30. It’s very simple, it’s demographics.”

Five billion people live in the region and many are moving from the countryside to rapidly growing cities.

“In the west, you can improve the infrastructure, but it’s already there. In the west, steel production is very much linked with the economy,” he said.

“If the economy is doing well, because of consumer goods, then you will have more steel consumption. But in Asia, even if consumer goods are not doing well, you still have to build infrastructure.”

Editing by Andre Grenon

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