Iron ore customers
Vale SA’s (VALE) major customer base for iron ore and iron ore pellets is located in the Asian market, which includes China, Japan, Taiwan, and South Korea. In 2013, China accounted for 47.7% of its total iron ore and iron ore pellets shipments. Asia accounted for 64.9%, followed by Europe, 18%, and Brazil, which accounted for 11.8% of shipments.
The top ten customers accounted for ~47% of iron ore and pellets sales by volume and 42.4% of iron ore and pellets revenue.
Iron ore and iron ore pellets are sold under different arrangements, including long-term contracts and on a spot basis through tenders and trading platforms. Pricing mechanisms are usually linked to the Chinese spot market, including the following systems, generally:
- Daily spot prices
- Spot price after delivery, consisting of a provisional price and an adjustment invoice following delivery
- Current quarter and monthly averages
- Three-month average with a lag of one month
The chart above shows the evolution of Vale’s pricing mix over time.
Usually, most of its Australian peers including BHP Billiton Ltd. (BHP), Rio Tinto plc (RIO), and Fortescue Metals Group (FSUGY) also have spot pricing or short-term pricing arrangements with customers. Cliffs Natural Resources Inc. (CLF), on the other hand, has more long-term pricing arrangements with its US steelmaking customers that are less sensitive to volatile seaborne iron ore prices.
The SPDR S&P Metals and Mining ETF (XME) invests in the above-mentioned stocks.
Vale also emphasizes customer service to improve its competitiveness. In addition to offering technical assistance to its customers, Vale operates sales support offices in Tokyo, Seoul, Singapore, Dubai, and Shanghai. These offices monitor customer requirements and ensure timely deliveries.