Vale Iron Ore Export Asia Overweight

Vale's iron ore exports to Asia continue to dominate the company's revenue, while also increasing the shipping mileage of the dry bulk market.

On the 15th, Vale released an annual report that the company's iron ore production in 2011 increased by 4.8% to 322.6 million tons, 51.9 million tons of pellets, an increase of 5.8%, which pulled the company's 2011 global mining company iron ore production head.

According to the report, in 2011, the company's exports of iron ore and pellets increased to 7.8 million tons in Asia, while exports to the Americas only increased 1 million tons, and to Europe, a negative growth of 4.4 million tons. Therefore, such a large displacement of exports will have a great impact on the demand for dry bulk shipping capacity. The Brazilian-to-Asian ports doubled their distance to Europe or North America, so Brazil’s growth in Asian iron ore exports will undoubtedly benefit the dry bulk market.

Last year, China's economic growth and infrastructure construction brought about the demand for ore, and both the output and export volume of Vale's ore increased. Last year, China imported a total of 131.9 million tons of ore from Vale, an increase of 5.5 million tons year-on-year.

Such high import volume will bring nearly 20 billion U.S. dollars in revenue to the company, highlighting the close cooperation between the two parties. After South Korea and Japan followed China, imports also increased significantly. Vale exports ore to South Korea 33 million tons, an increase of 8.7% to 15.2 million tons in Japan, an increase of 7.1%. After Japan suffered a major earthquake in March last year, the reconstruction of the disaster-stricken area spurred steel mills' demand for ore, and imports continued to increase after the first quarter.

At the same time, due to the credit crunch of banking reforms, Europe’s economic growth is weak, and some euro-zone countries have experienced economic recession. Demand for ore in Europe has been declining throughout the year. In the fourth quarter of 2011, the volume of iron ore trade in Europe hit a two-year low, when only 12.9 million tons of iron ore was exported from Vale to Europe, a decrease of 4.3 million tons year-on-year.

In 2011, Vale's outstanding performance left its two major competitors far behind. The increase in the company's total ore output was close to the combined growth of mining giants Rio Tinto and BHP Billiton. According to the respective annual reports issued by the two companies, Rio Tinto and BHP Billiton's ore production increased by 6 million tons and 9.4 million tons respectively in 2011, while the Vale's one added 14.8 million tons. Western Australia is closer to China than Brazil to China, which means that the increase in the market share of Vale's ore trade will bring good news to the short-term shipping market.

From the perspective of corporate earnings, Vale’s net profit fell to US$4.7 billion in the fourth quarter of last year, which was a decrease of US$1.2 billion from the same period of last year, despite the fact that the increase in costs and the erosion of profits from low mineral prices dragged down production.