The global iron ore market will be playing catch-up with an onslaught of increasing supply during the next two years, Brazilian mining giant Vale said.
The company has upgraded its estimate for supply growth in the so-called seaborne iron ore market this year to 140 million metric tonnes from 120 million tonnes, Jose Carlos Martins, executive director of Vale's ferrous and strategy division, said in a conference call. Earlier-than-expected production ramp-ups by Australian miners and scant rainfall in Brazil contributed to the increase.
On the other hand, demand for steel in China has fallen short of expectations, Mr Martins said.
The result was Vale's average sales price for iron ore in the second quarter fell to $US81.03 per metric tonne, the lowest level since early 2010.
Vale is the world's biggest producer of iron ore, the main ingredient of steel, and is investing heavily to increase its own production capacity to meet projected demand from China in coming years.
Chinese appetite for steel, however, is slowing along with the Asian country's economy.
Vale's bet is that there are enough high-cost mining operations in China to support iron ore prices above the Brazilian company's relatively low production costs.
"Despite this not-very-favourable scenario, the seaborne market is growing almost 20 per cent from the previous year, demonstrating that there is a big potential to displace less-competitive producers," Mr Martins said. "I think this phenomenon will continue."
Still, Vale executives say they are working to trim costs to face an uncertain outlook for commodities.
The company's capital expenditures for maintenance during the first half of 2013 fell 21 per cent from a year earlier.
"We think that may signal a decline from what was originally forecast," Chief Financial Officer Luciano Siani said. "That decline could be between 5 and 10 per cent. I think we've got enough certainty to say that."