Vale CEO: How we're staying competitive

A new deal with Chinese shipping firm Cosco will help Vale capture a larger share of the Chinese iron ore market, CEO Murilo Ferreira told CNBC.

"We are very confident that it's an issue of time. Having huge material, millions of [high quality] tons, for sure China will see the merit of having Brazilian ore, mainly our ore from Carajas. It's an issue of quality, it's an issue of competitiveness," Ferreira said on Thursday.

Announced on Friday, the deal will see the Brazilian iron ore producer - the world's largest - transport the commodity in its Valemax megaships to China, ending a two-year ban. Its vessels haven't been allowed to dock at mainland ports since 2012 due to safety concerns raised by China.

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Asked about the size of cost savings and freight advantages the deal is expected to bring, Ferreira offered an unusual response: "I prefer to say that we are helping the environment. We have a savings of 35 percent in the level of emissions, which is extremely important for us at Vale and extremely important in China as well."

In August, Vale announced plans to double iron ore exports to China within five years.

"We are sticking to [that] plan. We must be very competitive in China, which has one of the lowest costs in the world. With concerns of pollution in China and low levels of contaminant in our ore, we can help the Chinese economy remove some of those concerns."

An oversupplied market

The deal comes as at an opportune time, with iron ore prices are hovering at five-year lows and as Vale's Australian competitors continue to increase output.

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Vale's Brucutu mine in Barao dos Cocais, Minas Gerais.
Dado Galdieri | Bloomberg | Getty Images
Vale's Brucutu mine in Barao dos Cocais, Minas Gerais.

"I think that the problem that we are facing today [in iron ore] is the level of inventories at the port facilities. We have loads that have started to be reduced, and then in this case we can see some adjustment, but not a big change. We are considering that in the end of this year, prices can be around $95 dollars."

Iron ore prices plunged more than 20 percent over the past six months and last traded around $84 on Thursday. But Vale, which prides itself on being one of the industry's lowest-cost producers, insists that projects remain profitable and expects to cut costs further.

"Last quarter, our production costs were in the range of $22-$23 per ton. In our new project, we intend to produce below $15 per ton at our port facility, which is very competitive in any scenario." Ferreira said.

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Optimistic on China

Ferreira objected to calls that the sell-off in iron ore prices is mostly due to cooling Chinese demand.

"The problem that we are facing right now is not regarding the demand, the demand is very strong. You can see that in 2011, for instance, China produced 683 million tons of steel. In 2012, 719 million tons. In 2013, almost 780 million. What's happened now is that we have an oversupply. In recent years, there's been over investment," he said.

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Beijing will finish rebalancing its economy around 2025 to 2028, the CEO said. If iron ore demand starts to cool by then, other countries will make up for it, he said, highlighting Vietnam, Sri Lanka and the South American region.