The m etals and m ining industry under structural changes Singapore Singapore March 2 4 , 2 0 0 9 March 2 4 , 2 0 0 9 1
Disclaimer “This presentation may include declarations about Vale's expectations regarding future events or results. All declarations based upon future expectations, rather than historical facts, are subject to various risks and uncertainties. Vale cannot guarantee that such declarations will prove to be correct. These risks and uncertainties include factors related to the following: (a) the countries where Vale operates, mainly Brazil and Canada; (b) the global economy; (c) capital markets; (d) the mining and metals businesses and their dependence upon global industrial production, which is cyclical by nature; and (e) the high degree of global competition in the markets in which Vale operates. To obtain further information on factors that may give rise to results different from those forecast by Vale, please consult the reports filed with the Brazilian Comissão de Valores Mobiliários (CVM), the French Autorité des Marchés Financiers (AMF), and with the U.S. Securities and Exchange Commission (SEC), including Vale’s most recent Annual Report on Form 20F and its reports on Form 6K.” 2
A dynamic mining landscape � The metals and mining industry has experienced significant structural changes over the last ten years. � Economic growth has led to deep changes in the demand as well as in the supply side. � Financial globalization has stimulated supply growth and changes in the industrial organization of mining. � The global financial crisis is expected to generate important implications for the metals and mining industry. 3
4 Econom ic grow th and a changing environm ent
Over the last few years, the world economy has experienced one of its highest growth periods Global GDP grow th % 1870-1913 2 4 . % 1914-1950 1 8 . % 1950-1973 4 9 . % 1974-2001 3 3 . % 2002-2008 4 1 . Sources: Angus Maddison, “The world Economy: Historical Statistcs”, IMF and Vale 5
One of the main characteristics of this recent period was the rising importance of emerging market economies, particularly Asian EM, as a source of growth Contribution to global GDP growth Emerging Asia EM economies 35% 55% 1986-2005 2005-2007 45% 66% Sources: IMF and Vale 6
Asian markets have been the drivers of global consumption growth of minerals and metals Contribution to global Contribution to grow th in consum ption grow th iron ore seaborne trade 2000-2008 2000-2008 RoW Asia China 24.4% Steel 75.6% 62.8% 17.9% Rest of 5% Aluminum 82.1% the world 65.9% -14.7% Copper 114.7% 91.7% China 95% 0.4% Nickel 99.6% 108.5% Sources: Vale and Tex Report Sources: Vale, WBMS and World Steel Association 7
China was key in the dynamics of demand increase, given the resource-intensiveness of its growth process, similar to the US economy in the past Steel consumption intensity - 2006 Nickel consumption intensity - 2007 70 70 US 1 9 5 0 4 60 60 Consumption intensity¹ Consumption intensity² China 50 50 China 40 40 30 30 20 20 10 10 US US 2 0 0 7 0 0 0 10,000 20,000 30,000 40,000 50,000 0 10,000 20,000 30,000 40,000 50,000 GDP per capita³ GDP per capita³ Aluminum consumption intensity - 2007 Copper consumption intensity - 2007 2,000 1,200 China US 1 9 1 3 4 Consumption intensity² Consumption intensity² 1,000 US 1 9 7 3 4 1,500 800 China 1,000 600 400 500 US 2 0 0 7 200 US 2 0 0 7 0 0 0 10,000 20,000 30,000 40,000 50,000 0 10,000 20,000 30,000 40,000 50,000 GDP per capita³ GDP per capita³ ¹ Consumption in metric tons per USD million; ² Consumption in metric tons per USD billion; ³ in PPP; 4 peak level Sources: Vale, WBMS, IISI, IMF, USGS and Angus Maddison “Contours of the World Economy”, Oxford University Press, USA, 2007 8
The disequilibrium stemming from fast demand growth and slow supply response produced substantial price pressures � Given the long lead times between discovery and production start-up, the supply response was not sufficient to cope with the rapid demand increase. � In addition, geological and institutional limitations contributed to a slower supply increase. � Prices of minerals, metals and freight experienced high upward volatility and reached peak levels 9
Iron ore prices I ron ore prices and seaborne m arket 160 900 I ron ore price Seaborne 800 140 700 120 US$ cents/ fe-dm t 600 100 500 Mt 80 400 60 300 40 200 20 100 0 0 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 Source: Vale 10
Base metal prices LMEX index ¹ 5,000 323% 4,500 4,000 3,500 3,000 154% 2,500 2,000 144% 1,500 1,000 500 78 58 15 50 18 13 38 16 20 50 28 15 26 37 0 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 7 7 7 7 7 8 8 8 8 8 9 9 9 9 9 0 0 0 0 0 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 ¹ LME base metals prices index, includes: copper, aluminum, nickel, zinc, tin and lead 11 Sources: Vale and Reuters Ecowin
Freight prices for dry bulk cargo Baltic Dry index¹ 12,000 10,000 8,000 6,000 4,000 2,000 0 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 8 8 8 8 8 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 ¹ Monthly average prices 12 Sources: Vale and The Baltic Exchange
The Chinese response to rising prices was not efficient � Iron ore: high-cost, low-quality and high-waste � Nickel: nickel pig iron => high-cost, low-quality, high energy consumption and negative environmental impact � Alumina: increasing dependency on imported bauxite 13
Despite Chinese efforts to boost domestic iron ore output, dependency on imports rose to 58% in 2008 from 28% in 1998¹ Chinese iron im ports million metric tons CAGR 1999-2008= 23.7% 45 40 35 30 25 20 15 10 5 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 ¹ Share of Chinese domestic consumption of iron ore met by imported iron ore 14 Sources: Vale and Bloomberg
Notwithstanding the low endowment of natural resources, huge investments made Asia responsible for a major share of metals production Shares of global output Asia China 24.1% 1980 5.2% Crude 56.4% Steel 2008 37.6% 12.0% 1980 Prim ary 2.2% Alum inum 44.3% 2008 33.3% 15.3% 1980 Refined 2.9% Copper 42.6% 2008 20.4% 25.9% 1980 Refined 4.3% Nickel 25.3% 2008 14.0% Sources: IISI, WBMS and Vale 15
As a consequence of structural changes, China has become a global leader in consumption and production of metals Chinese share 2008 in % Global Global consumption Rank production Rank Crude steel 33.0 #1 37.6 #1 Refined nickel 26.0 #1 14.0 #2 Refined copper 29.0 #1 20.4 #1 Primary aluminum 34.0 #1 33.3 #1 Source: Vale, World Steel Association and CRU 16
Asian growth has been strong and has shown a similar pattern among the various countries 3.5 3.3 3.1 I ndex ¹ , base= t 2.9 2.7 2.5 2.3 2.1 1.9 t t + 6 t + 12 t + 18 t + 24 t + 30 t + 36 t + 42 China Singapore Taiwan South Korea Japan I ndia 1978-2007 1975-2007 1965-2007 1970-2007 1952-2007 Source: IMF and Vale ¹ logarithmic scale, t = year when growth started to accelerate 17
Emerging Asia is the fastest growing region in the world. It remains fundamentally sound and is expected to resume high growth in the future Share of w orld GDP and GDP grow th 24 US Em erging Asia 20 Share of w orld GDP 2 0 07 16 12 China 8 Japan Germ any 4 Brazil Mexico 0 0 2 4 6 8 10 12 GDP grow th 1 9 8 0-20 0 7 Sources: Vale and IMF 18
The global recession is not expected to cause a disruption of long-term fundamentals of mineral and metals � Given their metal intensiveness, infrastructure spending, urbanization and industrialization are the main underlying forces of demand growth for minerals and metals. � The UN estimates that EM population in urban areas will increase by 1.2 billion over the next twenty years.¹ � The urbanization move will require significant investment in infrastructure in EM economies. � In addition, EM economies are expected to increase in infrastructure spending to pursue productivity gains and to fight poverty. � Per capita income growth in EM will continue to generate demand growth for consumer durables, another driver of the expansion of metals consumption. ¹ Source: UN Department of Economics and Social Affairs 19
Urbanization is expected to remain a major source of demand growth for natural resources. China’s current urbanization rate is equal to Brazil’s in the late 50’s Chinese urban population % of total population 7 3 % 70% 6 0 % 60% 50% 4 6 % 40% 30% 1 8 % 20% 10% .... .... 0% 2030E 2050E 1977 1983 1989 1995 2001 2007 20 Sources: Vale, CEIC and UN
The urbanization trend: China and India have a rising share in global urban population, 36% of the estimated increase between 2005 and 2025 2 0 0 5 w orld urban population 2 0 2 5 w orld urban population 3 .1 6 billion 4 .5 8 billion China China 18% 17% India India 12% 10% Other Other 73% 70% Source: UN Population Division 21
22 Finance and m ining
Recommend
More recommend
