Reuters reported that Brazil's Vale sought to reassure investors that it is well positioned to weather a slowdown in Chinese demand, a day after it posted its worst earnings results in two years.

In a conference call to discuss the earnings, Vale executives said the company's low cost production model would help shield it from a drop in demand for metals. They also said the company expects the global iron ore market to rebound soon, even though metals prices show no signs of an imminent recovery.

But investors remained wary, and Vale shares fell as much as 3%, while the overall BM&FBovespa exchange was trading up. Late Wednesday, the company posted second quarter profits that tumbled 58% because of slowing demand for iron ore, which accounts for three quarters of its revenue.

Prices for iron ore have been falling even more precipitously since the second quarter ended, which suggests that difficult times for the company are not over yet.

Mr Jose Carlos Martins director of ferrous metals said that he sees USD 120 a tonne as a floor for the price of iron ore, while current spot market is trading between USD 117 and USD 118 per tonne China delivery.

Mr Martins said that the current ore prices were hurting Chinese producers, which he did not believe would go on for long. But he added that China had excess steel production capacity, which was inducing mills to seek out the lowest cost iron ores.

Source - Reuters

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