Vale SA, also known as Companhia Vale do Rio Doce, the Rio de Janeiro-based mining giant and parent company of Vale Inco in Canada, is reporting that its profits plunged 84.2 percent in the second quarter of 2009 as the global economic slump reduced demand and prices for the iron ore it produces aside from nickel.
Net income for the April to June period totalled $790 million, or $0.15 a share, down from $5.1 billion, or $1.04 a share, in the second quarter of 2008, the company said.
Vale SA, the world's largest producer of iron ore, said revenue dropped 53.3 percent in the second quarter to $5.1 billion, down from $10.9 billion in 2008.
The company attributed the decline in revenue to a "downshift in demand to which companies responded by curtailing production" and said "results were also hurt by the lagged effect of iron ore negotiated prices."
Vale said that in settling benchmark prices for 2009 with its main customers it reduced the price of iron ore fines by 28.2 percent, pellets by 48.3 percent and lumps by 44.5 percent.
China remains Vale's biggest customer, accounting for nearly 40 percent of its sales, the company said. China bought 35.6 million metric tons of iron ore and pellets from Vale in the second quarter, up from the 25.1 million metric tons in the same period in 2008.
Vale Inco in Canada last week declared "force majeure" on nickel deliveries from Sudbury operations, where 3,100 members of USW Local 6500 have been on strike since July 13. Vale Inco workers are also on strike in Port Colborne, Ont. and at Voisey's Bay in northern Labrador.
Force majeure, or "superior force" in French, is a legal concept and procedure designed to relieve Vale Inco from contractual obligations to deliver nickel due to the strike. A common clause in contracts, it essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such as a war, strike, riot, crime, or an event described by the legal term "act of God" (e.g., flooding, earthquake, volcano), prevents one or both parties from fulfilling their obligations under the contract.
According to Veja, a Brazilian Portuguese-language weekly magazine, President Luiz Inácio Lula da Silva mused last week about the possibility of the Brazilian government taking control again of Vale SA.
Lula was said by Veja to have asked officials inside his government to find a way to ensure the government controls Vale through Previ and BNDES Participações SA, the investment arm of Brazil's state development bank, the São Paulo-based Veja said. Created on June 1, 1942 by the Brazilian government, Vale was privatized on May 7, 1997.
Valepar SA, the company that controls Vale, is owned by Previ, the employee pension fund of state-controlled Banco do Brasil SA; Bradespar SA, an industrial holding company; Mitsui & Co, Japan's second-largest trading company; and BNDES Participações SA.
