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CVRD Becomes Largest Company in Brazil and Latin America

Brazilian mining Companhia Vale do Rio Doce (CVRD)recently closed a contract with Qatar Steel Company (Qasco), a state owned smelter in Qatar, one of the largest in the Middle east, to supply 2.66 million tons of iron pellets up to 2010.

This is one more chapter in the expansion of business by the mining company on the foreign market, and it includes not only exports, but also control and participation in foreign companies and research and exploration in other countries.


Samarco, a Brazilian company that belongs to Vale and to multinational company BHP Billiton, had already signed an accord for the supply of 1.7 million tons to Qasco, also up to 2010.


The third largest mining company in the world and the largest exporter of iron ore and pellets, with 33% participation on the foreign market, at the beginning of this year, Vale negotiated a 71.5% increase in the price of the ore with its foreign customers.


This, according to specialists, is going to make revenues due to the export of this product exceed those of the soy complex (grain, chaff and oil) and contribute to the maintenance of Brazil’s trade balance surplus.


According to forecasts by the Brazilian Foreign Trade Association (AEB), exports of the ore should generate US$ 8.1 billion, against US$ 4.759 billion in 2004, a growth of over US$ 3.3 billion. Before the increase promoted by Vale, the association forecasted revenues of US$ 6 billion for 2005.


“And this is not only due to the value. The volume shipped should also increase, growing from 215 million tons in 2004 to 240 million this year,” stated the vice president of the AEB, José Augusto de Castro. “Iron ore alone should represent more than the whole of the soy complex,” he added.


According to estimates by the organization, exports of the grain and its derivatives should reach US$ 8 billion this year, due to the drought that took place in southern Brazil and to the reduction in the price of the commodity on the foreign market.


In the evaluation of foreign trade consultant Joseph Tutundjian, this is the first time that a company manages to increase the price of the product for sale on the foreign market at such a rate.


“This is a commodity that a few years ago was worth less than its freight. Today Vale has increased its price by over 70% and still manages to sell. This is excellent for them,” he said.


According to the company, there has been a “considerable expansion of the global demand for ores and metals,” and China is one of the main generators, causing an unbalance in the offer and demand ration.


It was in this scenery that Vale presented, in 2004, the best result in the company history.


“The price increase and our negotiations with our customers clearly reflect the demand, the moment the market is going through,” stated the president of Vale, Roger Agnelli, in a recent interview.


Largest Company in Latin America


In March, the company’s market value reached US$ 39.9 billion at the New York Stock Exchange (NYSE), making it the largest private company in Latin America.


Vale had record profits of US$ 2.573 billion last year, a historic record of 66.2% growth, when compared to 2003. Revenues, in turn, totalled US$ 8.479 billion, 52.9% more than in the previous year.


According to the company, exports generated US$ 5.534 billion, against US$ 4.229 billion in 2003, pushing the company from the third to the first place among the largest Brazilian exporters, ahead of state-owned oil giant Petrobras.


Although Iron ore is the main product offered by the company, with production of 211 million tons in 2004 (12% more than in 2003), the company also exports other ores, such as bauxite, copper, potassium and kaolin.


The inauguration of copper mine Sossego in the northern Brazilian state of Pará, for example, was announced as one of the main company operations last year.


The company also operates in the production of aluminum, through its subsidiaries Albras, Valesul and Alunorte, and in the energy sector.


In 2004, for example, Vale inaugurated hydroelectric power plant Candonga, in the southeastern Brazilian state of Minas Gerais, of which the company owns 50%. This is the fourth hydroelectric power plant owned by Vale to be put into operation.


In the case of iron ore, Vale forecasts a growth of 10% in production this year. According to Roger Agnelli, there is lack of the product on the foreign market, around 40 million tons, and equilibrium between offer and demand should only be reached in 2007.


According to him, the market will continue at very elevated rates during the next 18 months. Vale exports 85% of the iron ore and pellets the company produces (231.5 million tons in 2004).


Investment


In this sense, the company approved an investment budget of US$ 3.332 billion for this year, against US$ 1.956 billion in 2004. Of the total, 22.1% will be invested in the maintenance of existing business and 77.9% in projects, research and development.


A large part of the funds will be invested in foreign operations. The company controls or has participation in other companies in the United States, Argentina, Chile, Peru, France, Norway and Bahrain.


In the latter case, Vale is the owner of 50% of Gulf Industrial Investment Company (CIIC), an iron pellet factory. Apart from that the company researches and explores ores in various countries in Latin America, Africa and Asia.


In the area of mining, the company is present in 13 of the 27 units of the Brazilian federation. Apart from that, it is the largest logistics operator in the country, controlling 9,000 kilometers of railways and eight port terminals. The company transports not only its own production, but also provides third party service.


In 2004, the Vale logistics sector had revenues of US$ 877 million, a value 45.2% greater than that in 2003 and represented 10.3% of total company revenues.


Vale do Rio Doce was established in 1942 by the Brazilian government. In 1997 the company was privatized and started being run by a consortium led by Companhia Siderúrgica Nacional (CSN), a flat steel producer.


The company is currently controlled by Valepar, whose main supplier is Previ, the pension fund of Bank of Brazil employees, followed, in this order, by Bradespar, which belongs to Bradesco bank, the largest bank in Brazil, the Japanese Mitsui group, BNDESpar, belonging to the Brazilian Development Bank (BNDES), and Opportunity bank.


Valepar has 33.6% of the company capital and 52.3% of the voting shares. Foreign investors have 42.4% of total company capital and 30.1% of the ordinary shares (voting shares).


The company currently employs 31,650 employees. If indirect jobs generated by the company are considered, the total rises to 94,400.


ANBA – Brazil-Arab News Agency
www.anba.com.br

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