Vale and China repaired

In Vale, China's quagmire, it decided to please the relevant government departments and companies by increasing its purchase of the Chinese market.

In late March, the world's largest iron ore producer appointed his chief financial officer, Xi Yaning, to come to China to sign two new purchase contracts with Chinese companies. On March 21st, in order to "let Xi Yaning experience the speed of a China," Vale China arranged for Xia Yining to take a high-speed train from Shanghai to Beijing. This is the first time that Xi Yaning has come to China as the CFO of Vale.

The two single purchase contracts that Xi Yaning brought include the first-ever US$100 million civil engineering contract signed with the Chinese state-owned company China Harbour Engineering Company and the long-term agreement for the purchase of steel structures with Shanghai Zhenhua Heavy Industry (600320). This contract does not provide Specific purchase amount. Previously, Vale had signed long-term purchase agreements with CITIC Heavy Industries (601608) and Shanghai Zhongyuan Kawasaki Heavy Industry Steel Structure Co., Ltd.

Although the procurement department was established in China as early as 2008, Xi Yaning said: “The new phase of Vale's procurement in China will really start. In the future, Chinese suppliers will play an increasingly important role in Vale's global sourcing strategy.”

Reflections In recent years, the two major plans that Vale has pursued in China have fallen into trouble. In 2009, Vale tried to set up an iron ore distribution center in Qingdao, China, and failed to obtain government approval. In early 2012, due to a paper document issued by the Ministry of Transport, CVRD built a large ship specifically for the Chinese market and was banned from relying on Chinese ports. Mooring. In January 2013, Vale just signed a strategic agreement with the Zhanjiang City Government of Guangdong to establish an iron ore distribution center, which led the China Shipowners Association to write a letter against it.

Vale does not want to see frequent resistance in China, the world’s most important iron ore market. Martins, the executive director and head of the global iron ore business, rethought, “The development of Vale in China has indeed made some mistakes. For example, we have not noticed some situations. Maybe in some ways, we are not very clear. We will communicate some of our ideas to relevant Chinese parties. If we can give the parties clearer information, the development of the situation may be different from that of today."

A few days before the Spring Festival this year, Martins made a special trip to China to give New Year's greetings to some major Chinese customers and partners. On February 1, he said in an interview with the Economic Observer newspaper that he welcomed Chinese companies to participate in more projects in the Vale, and then everyone came together to discuss how to allow relevant Chinese government departments to allow the establishment of iron ore Stone distribution center and docking of large ships.

Five years ago, when Vale planned to launch a ship plan for the Chinese market, it had heard suggestions from some consulting companies and Chinese companies. One of the parties’ proposals was that Vale should fully consider the views of various Chinese stakeholders on this issue and not be too optimistic. The person thinks, "The Vale was obviously too optimistic."

Martins's above reflections are mainly based on a stalemate that Vale’s large ship plans to find in China. But in fact, the situation that Vale needs to face in China may be far more than that.

On March 6, China’s National Development and Reform Commission issued a rare statement that iron ore prices were not transparent and the mining giants were suspected of manipulating iron ore prices. On March 27, Michiel Hovers, vice president of global sales and head of iron ore sales at BHP Billiton, another mining giant, communicated with Chinese customers, visited the National Development and Reform Commission, and communicated with relevant officials in charge of the steel industry. In this communication, BHP Billiton stated that China has always regarded China as its important market and is committed to strengthening cooperation with Chinese companies.

The reaction to BHP Billiton is different. On March 18th, Vale, CEO of Vale, will respond to the National Development and Reform Commission’s response to the occasion and choose an investment conference in Hong Kong. Ferreira said that the current iron ore price system is transparent. The most important issues in the market are supply and demand. The best answer Vale can give is to guarantee the continued supply of iron ore to the market.

When Vale, executive director of Vale and head of global iron ore, met with reporters of the Economic Observer on February 1st, he repeatedly stressed that there was no other attempt at Vale, because “We are just selling ores. of". He said, "We always respect Chinese choices forever. We will not impose any unwanted things on China. We will eventually sell ore."

However, it is clear that Vale needs to think about how to better sell ore to China.

Purchasing On March 22, Xi Yaning told the Economic Observer in Beijing, “Most of the Chinese suppliers in Vale are state-owned companies. We understand that these companies currently supply equipment for us, and in the future they also hope to be the operations of our project. Partners. We believe the best way to establish a long-term strategic relationship with Chinese state-owned companies is to first make them our suppliers and then develop other partnerships."

Current Chinese suppliers that have long-term relationships with Vale include China Harbour Engineering Co., Ltd., Shanghai Zhenhua Heavy Industry and China Railway 20th Bureau Group Co., Ltd.

Xi Yaning said: "These companies and other companies will all be companies that we hope to establish long-term strategic partnerships." Xi Yaning did not mention that China may be the most long-term partner of the company, COSCO Group, at the moment.

COSCO Group, which is in deep recession, hopes to take advantage of the huge volume of Vale sold by China's iron ore. In 2012, the annual production volume of iron ore and pellets produced by Vale reached an unprecedented level of 303.4 million tons, of which approximately 150 million tons were sold to China. COSCO Group once asked for the capacity of concession to Vale in a negotiation two years ago, but it failed to do so. So far, this is still one of the conditions for COSCO and the China Shipowners Association to discuss the issue of large ships calling at Chinese ports with Vale.

However, Xi Yaning still encountered the problem of the big ship in the interview. He said, “We have never considered having any shipping company. Ideally, we will still focus on our core business, namely mining. What is important is that we have a long-term and stable iron ore capacity. So with the Vale Iron Mine The expansion of stone production capacity requires larger vessels for transportation. Vale's possession of smaller vessels does not benefit our strategy." Vale 2012 Vale sold smaller vessels worth US$600 million and after the sale Rent it back for use.

Since 2008, Vale has directly purchased 53 material machines, 55,000 tons of steel structures and 100 large-scale processing equipment from Chinese suppliers. The average amount of direct and indirect purchases from China each year is US$1.6 billion.

Xi Yaning hopes to find a company in China that will provide steel structures for the expansion of the Caracas project, valued at close to 50 million U.S. dollars. At the same time, it is also negotiating with Chinese suppliers for some other projects under construction currently underway in Vale, hoping to have more cooperation.

Xi Yaning said, “Our procurement in China has expanded from equipment to service. This is a very big change. Before we purchased more equipment in China, we now invite Chinese suppliers to provide our civil engineering services. This is a big one. Breakthrough."

In addition to purchasing, Vale hopes to establish closer ties with Chinese companies. It is reported that Vale is considering reducing some small assets. We know that Chinese companies may have a cooperative interest in these overseas assets.

Vale’s chief financial officer Xi Yaning said that in the past, Vale was usually investing alone, but in the future Vale will cooperate more and win more opportunities through limited cash flow. Part of this is due to the drop in cash flow at Vale.

Vale Vale's profit fell by 43.3% in 2012. Its financial report released on February 27 showed that Vale's basic profit in 2012 reached 11.2 billion U.S. dollars, compared with 23.2 billion U.S. dollars in 2011. Despite this, this profit data still ranks third in the company's history.

In 2013, Vale plans to sell its non-core assets in order to obtain $1.5 billion in funding. Vale did not disclose further details of Vale's willingness to sell assets.

The investment amount for capital projects approved by the Vale's Board of Directors in 2013 was 16.3 billion U.S. dollars, which was mainly used to invest in the construction of the “lowest cost global” iron ore project in Caracas and the logistics projects in the Mozambique coal mine project. Xi Yaning said, "China's suppliers play an important role in these two projects. We now hope to achieve these opportunities through cooperation."

In February of this year, Martin S. Vale, executive director of Vale and head of global iron ore, spoke to reporters about the largest ship and iron ore distribution center. He stated that there is no timetable for large ships or distribution centers. Because this does not depend on Vale, it depends on when the relevant authorities in China approve.

Now Vale is working with different partners and customers, including some trading companies, to discuss and find a partner to jointly operate the distribution center. Martins said, “Valais needs to consider what kind of benefits it can bring to China so that relevant government departments can approve our plan.”

He said, "Any interested Chinese company can cooperate with us. We don't care who this ship and distribution center is. We have made mistakes. Now, in China, we are willing to wait patiently."