Vale's Plans to Win in a Cut-Throat Market

Credit: Eny Miranda/Vale By Reuters 09-19-2015 07:20:38

Two kilometers out to sea, workers battle treacherous currents to build a huge dock capable of loading the largest iron ore ships on earth, a vital step as Brazil's Vale fights for dominance in a tumbling market.

The work in the northeastern city of Sao Luis is a small part of an iron ore project that stretches 1,000 kilometers from the Amazon rainforest in Para to the Atlantic coast and costs almost twice as much as the 2016 Rio de Janeiro Olympic Games.

The mammoth undertaking will secure Vale SA as the world's number one producer of the main raw material in steel making. In a cut-throat market where prices have halved since last year, it will reduce costs as well.

With a name like a space project, S11D will be delivered in the second half of next year.

The $17 billion price tag has scared some investors, who point to the pressure on Vale's balance sheet as earnings fall. Analysts also express concern its iron ore will sink a market already oversupplied by mega mines delivered by Australian rivals BHP Billiton and Rio Tinto.

But workers here shrug at the idea the project could be slowed in order to balance the market.

"We are following a very mature plan. There has been no order to speed up or slow down," said Adriano Mansk, who is responsible for the port work.

Chief Executive Murilo Ferreira, who was making a personal visit the same week, believes Vale's future hangs on S11D. It is "untouchable", he has told analysts.

By the end of July, 60 percent of the terminal's back end expansion and 58 percent of the new loading dock had been completed, according to latest figures.

Work is on track, Mansk said.

The expanded port will be able to handle 230 million tons per year, as the new mine and rail increase annual production by 90 million tons, the equivalent of about 7.5 percent of the whole global sea-borne market.

TRAIN PIT STOPS

The increased production will put unprecedented strain on Vale's rail network and has led the miner to rethink maintenance on its 11,000 train wagons.

Instead of disconnecting individual wagons to replace wheels or axles, the whole train will now enter a workshop the size of multiple sports halls. There the wheel system on a wagon can be removed and replaced by equipment installed below floor level.

The train then moves forward, allowing the next wagon to stop over the equipment and be fixed in the same way.

A nearby workshop for the locomotives resembles a Formula 1 pit stop. While iron ore is unloaded from wagons, trains are re-fueled and checked for faults and given minor repairs.

"If I'd been stuck with the old system, I would have need a much bigger fleet (to deal with the extra output)," Mansk said.

Out at sea, it has been the Atlantic tides that posed the biggest problem.

When the tide changes and the currents are at their strongest, the water at Vale's port resembles a raging river rather than a mooring spot.

In order to keep ships secured while they are being loaded, Vale is installing a huge web of pulleys, cables and steel. Electronic sensors monitor the tide, tightening and loosening the cables to keep the ship still.

By next year, Vale says the largest project in its history will be delivered. It is working like a company that believes its future depends on it.

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.