Vale sees iron ore quality, Chinese demand contributing to better price premiums

Brazilian mining giant Vale's (NYSE: VALE) distinctive iron ore quality and China's increased demand for the commodity will continue to contribute to better price premiums, director of iron ore and strategy José Carlos Martins told analysts in a conference call to discuss the company's fourth quarter and 2013 results.

"Iron ore from our Carajás operations, as well as our pellets, is differentiated by its quality," Martins said."Higher quality ores are better priced. The reduction in iron ore price volatility also led to a good performance last year," he added.

Chinese demand for ore with lower carbon emissions is also expected to have a positive impact on Vale's shipments to the Asian country this year.

Vale is expecting 2014 to be a more challenging year due to increased iron ore production, both from its own output and that of rival Australian companies. Vale is working to raise production to 480Mt/y by 2018, while BHP Billiton (NYSE: BHP) is on track to boost annual iron ore production to more than 200Mt and Rio Tinto (NYSE: RIO) is heading towards an increase in production capacity to 360Mt/y.

However, Martins expects the increased output to be absorbed during the year, and does not see iron ore prices below the US$110/t mark in 2014. "I don't see a large possibility for ore prices to fall below US$110/t in a sustained way," he said. Iron ore prices averaged US$135.08/t in 2013, according to The Steel Index.

"The price will continue to be very favorable and very profitable for Vale," Martins said. "There is a very strong resistance in price in the range of local Chinese iron ore costs."

Iron ore is averaging US$125.80/t so far this year as stockpiles rise in China.

Vale saw record sales of 305.62Mt of iron ore and pellets in 2013, up 0.72% from the previous record of 303.44Mt in 2012.

Vale's operating revenues last year rose 1% to US$35.23bn from US$34.87bn in 2012. Iron ore output reached 300Mt in 2013, down 3% year-on-year.