NEW YORK--Vale SA (VALE, VALE5.BR) says a robust iron-ore derivatives market would benefit its customers, although the Brazilian mining giant isn't interested in using such contracts to lock in prices for its main product.
Vale has no plans "to be a player" in any iron-ore derivatives market, Chief Financial Officer Luciano Siani said Monday at the company's investor day here. But a widely traded iron-ore market could allow Vale's customers to protect themselves from sudden fluctuations in prices, Mr. Siani said.
The market was created about three years ago, when the system for pricing the steel ingredient began to break down. For decades, iron ore was sold using annual contracts between consumers and producers. As China's steel industry grew, demand outstripped supply and mining companies used their leverage to demand shorter contracts. Now, a large amount of iron-ore sales are priced based on spot, or current, market prices.
The resulting volatility in prices has spurred futures exchanges such as Singapore Exchange Ltd. (S68.SG) and CME Group Inc. (CME) to create iron-ore derivatives contracts. But interest in the contracts, while growing, remains low.
Vale Chief Executive Murilo Ferreira said if the slow development of aluminum and copper derivatives markets is any indication, it could take time for the iron-ore products to take hold.
This "does not happen overnight," Mr. Ferreira said.
Vale's peers in the iron-ore mining industry also have said they wouldn't use derivatives, because hedging would sap profits.
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