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datasets.iitb.crawledDocs.yn_08Oct08_file_238 Maven / Gradle / Ivy

    Updated: New York , Oct 08 07:12 London , Oct 08 12:12 Tokyo , Oct 08 20:12 RESOURCES Vale Costs Rise as Ore Weakens, Credit Suisse Says (Update1) By Diana Kinch Oct. 7 (Bloomberg) -- , the world's biggest iron-ore producer, may face higher capital costs as the market for the steel ingredient weakens, Credit Suisse analysts said, lowering their share-price target. ``Short-term conditions have deteriorated as expected, but the severity may be worse than anticipated on the demand side'' of the ore market, the analysts said. Prices depend largely on China, where the summer Olympics helped cut demand, they said. As the credit crisis spreads worldwide, Rio de Janeiro- based Vale may face demands for higher returns on investment, the Sao Paulo-based analysts led by said in a research note sent to clients today. They lowered their 12-month price target for Vale's to $40 from $53, while keeping an ``outperform'' rating on the shares. ``We do not see current market turmoil as a major obstacle to fund future growth,'' Downey wrote. Vale is in a ``privileged position'' after a recent equity offering, and has about $15 billion in that offers a way to fund growth, he said. Investors may be assuming a 40 percent decline in iron-ore prices next year, following yesterday's 8.3 percent decline in Vale's ADRs, the said in the note. They suggested that the credit crisis may make it difficult for some producers to add iron-ore output capacity, which could aggravate structural imbalances in the market. Conditions worsened as Chinese ore suppliers failed to keep pace with steelmakers, the analysts said. Mills producing the metal reduced output partly because of the Beijing Olympics, and not for more fundamental reasons, they said. Current Softness ``The current softness is demand driven,'' the analysts said. ``Steel-industry production cuts are temporary.'' They added that it is iron-ore supply that is ``more at risk now.'' Credit Suisse will maintain its forecast of a 20 percent price increase for iron ore next year if China continues to import more than 30 million metric tons a month through December, the analysts said. Should ore prices fall 20 percent next year, they said they will trim their $4.04-a-share of Vale's 2009 profit by about 36 percent. Vale's ADRs $1.66, or 13 percent, to $11.14 at 4 p.m. in New York Stock Exchange composite trading. The company's shares have dropped 60 percent in New York this year. Each ADR represents one Class A preferred share. To contact the reporter on this story: in Rio de Janeiro . Last Updated: October 7, 2008 16:48 EDT More News | | | | | | | | | | | | | |