Bloomberg reported that Cia Vale do Rio Doce may cut production capacity by 25% this year after global demand for the steelmaking ingredient slumped.

Mr Michael Zhu head of Vale’s China unit said that the Brazilian company will shutter mines making low grade iron ore and high cost operations.

Rio de Janeiro based Vale said that Vale and rivals saw orders plunge from October last year as the global recession forced steelmakers to cut purchases and use up inventories. Iron ore output declined 26% in the Q4 from the September period.

Mr Zhu said that Vale is cutting costs and plans to increase the number of customers it has to counter the slowdown. It said that the company secured 50 million tonnes of orders from new customers in China after demand from traditional clients dropped.

He said that China will be looking for 100 million tonnes of cheaper iron ore as high cost mines domestically and elsewhere close. The closure of those mines in China has contributed to an import surge in March.

China’s customs office said recently that iron ore imports jumped 46% to a record 52.1 million tonnes in March from a year ago.

Mr Luo Bingsheng vice chairman of the China Iron & Steel Association said that overseas purchases will likely drop in April.

Mr Zhu said that Vale isn’t taking part in benchmark contract iron ore talks this year.

Traditionally, Vale, BHP Billiton Limitedtd and Rio Tinto Group, which account for about Q3 of global trade meet steelmakers to agree on prices for the year starting April 1. Once prices are settled between one producer and steelmakers, the others follow suit.

He said that we’ll support benchmark prices, declining to give a forecast. Vale in February said it would no longer be the price setter for iron ore.

(Sourced from Bloomberg)