Dallas, Texas 01/29/2014 (FINANCIALSTRENDS) – Vale SA (ADR) (NYSE:VALE) the Brazil based large capped iron and iron ore producer has been reeling at the stock market due to the combined effects of drop in demand for iron ore from its biggest market of China and drastic drop in the price of iron ore.
In a recent interaction with the press last week post a policy review meet chaired by Brazil’s Mines and Energy Ministry, Vale SA (ADR) (NYSE:VALE) Chief Executive Officer Murilo Ferreira attempted to send out a calming message to industry watchers and investors alike by explaining the reason for the temporary weakness as follows, “There was a recent toughening in credit policy in China and the steel companies were certainly affected. The companies have ended up working with lower stocks, but that is a transitory position.”
Mr Ferreira went on to add that the slowdown in demand of iron ore from the Chinese steel manufacturers is just a temporary phase and is certain to rebound with renewed vigour. He explained his positive outlook by linking it to the strong fundamentals being exhibited by the larger Chinese economy in spite of its relative slow down to 7.7 percent GDP growth rate in 2013. He predicted that the iron ore prices are bound to increase in the medium term as the world’s largest steel manufacturer and iron ore consumer China addresses structural challenges in its economy related to cheap loans and the manufacturers resume production post the traditional Chinese new year break.
It is appropriate to note here that the Chinese government, which tightly controls all facets of the economy, had recently tightened fiscal policy around loans in order to curtail access to cheap loans in order to account for slow down in the larger economy. This has resulted in the Chinese steel companies staying off the iron ore market leading to a 8.2 percent dip in the price of iron ore at the Chinese spot market in new year 2014.