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Brazil Mining Report Q3 2010
Business Monitor International, July 2010, Pages: 85
Brazil Mining Report provides industry professionals and strategists, corporate analysts, mining associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Brazil's mining industry.
BMI’s outlook for the Brazilian mining sector for the remainder of 2010 and beyond is positive. In uncertain global economic conditions, Brazil’s economy has proved resilient and BMI is forecasting an economic growth rate of 6% for the year. We expect the mining sector to mirror this increase with y-o-y real growth of 7.04% this year and a further 5.42% rise in 2011.
Brazil-based Vale, the world’s largest iron exporter, is one of the mining companies driving overall sector growth. Vale along with other industry giants Rio Tinto and BHP Billiton have forced changes resulting in the end of the 40-year-old benchmark system of pricing iron ore. Despite howls of protest from steelmakers and officials in Europe and China, iron prices will now be set by a formula based on the average price for the previous quarter. As a result, Q210 saw a 90-100% rise in the price of iron with a further 30-35% rise expected this quarter. This boon for producers has come at a time when demand for iron is rising due to increased orders from global steel manufacturers.
Meanwhile, there was further good news for ore producers following the decision of the Chinese government to allow more flexibility in the value of its currency. Brazilian mining companies Vale, MMX Mineracao e Metalicos and Companhia Siderurgica Nacional (CSN) are all expected to benefit from a forecasted 5% increase in the value of the renminbi. China’s domestic iron ore producers, already struggling to be competitively priced, will further lose out in dollar terms. Brazil’s ore miners stand poised to pick up the slack.
Elsewhere in the sector, gold mining is seeing increased activity because of the rise in demand from investors. As many European countries experience unstable currencies, gold is becoming an attractive alternate investment. Also, Asia has seen an increasing liberalisation of gold markets with significant growth in demand in China and India. As a result, BMI forecasts that Brazil will see an increase in gold investment and exploration projects over the next five years.
While global economies begin to recover, miners across the world are becoming increasingly concerned about the rising cost of mine development. As costs continue to rise, so does the amount of debt major companies are forced to carry. Vale’s net debt (including cash) on December 31 2009 was US$11.8bn. However, the increased development is having a positive effect on employment figures in Brazil. In 2010, BMI forecasts that the mining industry employment levels will increase from 2.56% of the workforce in 2009 to 5.99% in 2010. This is set to remain steady for the next four years.
Overall, BMI forecasts that the value of the mining industry will see a large increase from US$23.95bn in 2009 to US$30.32bn in 2010. This growth is expected to continue through until 2014, when the value will reach an estimated US$46.44bn.
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