Vale S.A. · BMFBOVESPA:VALE3
Vale — Companhia Vale do Rio Doce — Investor Day (June 2006)
54 slides from Vale's investor day presentation, Jun 28, 2006
Slide 1: Companhia Vale do Rio Doce
Companhia Vale do Rio Doce Rio de Janeiro June 28, 2006 1
Slide 2: The iron ore market
The iron ore market José Carlos Martins Executive Director Ferrous Minerals 2
Slide 3: Agenda
Agenda Iron ore & steel fundamentals The China effect Supply outlook CVRD´s response 3
Slide 4: Iron ore market fundamentals remain strong
Iron ore market fundamentals remain strong 1) Fuelled by buoyant demand, steel prices have been trending higher across the globe; 2) Although China remains leading the way, steel output in other regions is also growing; 3) Broad recovery in the steel market is underpinning the strength in metallic p
Slide 5: World steel consumption
World steel consumption IISI forecasts world steel consumption to keep strong at least until 2007 apparent consumption of finished steel +5.8% Mt +7.3% 1,150 +4.1% 1,087 World 1,013 974 + 5% + 6% others -3 % + 1.5% EU (25) - 4.6% + 3.9% CIS & other Europe + 6% + 4.5% + 3.3% Asia ex. China + 2.5% + 3
Slide 6: Steel production
Steel production World steel production ex-China is recovering world steel production ex-China 8.0% three months moving average 6.0% 4.0% 2.0% YoY (%) 0.0% -2.0% -4.0% -6.0% - 04 -0 4 -04 -04 -0 4 -04 - 05 -0 5 -0 5 -05 -0 5 -05 - 06 -0 6 r t r t r Fe b Ap n g c ec Fe b p n g c ec Fe b Ap Ju Au O D
Slide 7: Steel Prices
Steel Prices Steel prices are maintaining an upward trend, reflecting buoyant world demand growth. Prices are at their highest level ever! CRUspi Global Index June/06: 180 166 pts 160 Average ‘03 to ’05 = 131pts 140 China Boom! index 120 100 Average 94 to ’02 80 = 92pts 60 Apr-94 jul/95 Oct-96 jan/9
Slide 8: World steel production growth should be concentrated in regions with competitive advantages
World steel production growth should be concentrated in regions with competitive advantages 37% steel consumption population population slow growth fast growth 63% 2.3 billion 4.0 billion GDP (US$) 72% GDP (US$) 28% 32 trillion 12 trillion ? steel prod (t) steel prod (t) 70% 29% 794 million 312 mill
Slide 9: Steel production forecast
Steel production forecast Steel production growth is expected to continue in the coming years... CAGR 05-10 1,405 +4.5% 1,330 1,129 1,066 525 +8.5% 475 969 World 904 349 848 850 280 222 China 127 182 152 rest of 855 880 +2.4% 721 722 747 786 780 the 698 world ´00 ´01 ´02 ´03 ´04 ´05 ´08f ´10f China
Slide 10: Seaborne iron ore trade to grow > 5% pa through 2010
Seaborne iron ore trade to grow > 5% pa through 2010 Mt Western Europe E. Europe / CIS ´05 ´08 ´10 ∆ ´05 ´08 ´10 ∆ North America 128 132 132 +4 12 13 14 +2 ´05 ´08 ´10 ∆ China 21 24 24 +3 ´05 ´08 ´10 ∆ 270 400 460 +190 Middle East / Africa ´05 ´08 ´10 ∆ 20 33 36 +16 Asia (Ex. China) ´05 ´08 ´10 ∆ So
Slide 11: Iron ore seaborne trade
Iron ore seaborne trade …strengthening iron ore seaborne demand. CAGR 05-10 ¾ Seaborne trade volume shall be determined by supply conditions in the next years 895 +5.9% 825 670 603 460 +11.2% 400 World 537 270 454 452 484 203 China 148 70 92 112 rest of +1.7% the 389 389 400 425 435 384 360 372 worl
Slide 12: Chinese iron ore imports
Chinese iron ore imports Chinese iron ore imports are growing at a very fast pace. Growth in the LTM as of May 06: 27% YoY!! 35 30 Chinese iron ore imports 25 Jan-May 06 = 133Mt million tons 20 15 10 5 0 1999 2000 2001 2002 2003 2004 2005 2006 Source: China Customs 12
Slide 13: Chinese iron ore consumption
Chinese iron ore consumption Imported iron ore has gained impressive market share in China. share of domestic iron ore in Imports Chinese iron ore consumption 300 80% strong growth since Domestic ore Imports 1999 Domestic / total 70% further acceleration since 2003 60% 200 higher than domestic
Slide 14: The China effect
The China effect Companhia 14 Vale do Rio Doce
Slide 15: China's impact is a structural change
China`s impact in the metals & mining industry is not a cyclical peak, but a structural change. Across a broad range of industries, iron ore and steel were specially affected. China share of global consumption 2005 41% 31% 23% 23% 16% 9% Iron ore¹ Aluminum Steel Nickel Oil Copper ¹ China share in th
Slide 16: Steel consumption
Steel consumption Chinese steel consumption per capita has a long way to go 1200 2005 steel intensity curve F in is h e d s t e e l K g / c a p it a 1000 Korea 800 Italy 600 Spain Japan Germany 400 China USA 200 Russia Brazil India 0 0 10 20 30 40 50 GDP/capita (1995 US$ thousand) Sources: IISI and
Slide 17: Urbanization process
Urbanization process China is still a rural country and the urban population is expected to increase by 74 million by 2010 additional 74 million people, more than the UK population 50% 47% 42% 36% 29% 30% 26% 24% 19% 10% 1980 1985 1990 1995 2000 2004 2010E Source: Five-year plan 2006-2010, from Oct
Slide 18: The urbanization effects
The urbanization effects housing urbanization wave is a powerful infrastructure growth driver consumer behavior 18
Slide 19: Housing
Housing In 2010, Chinese construction of residential areas are expected to increase by 2,4 billion m2, demanding around 300 Mt of steel by then 297 3,5 CAGR 2005-2010: 300 10% 3,0 steel consumption (million tons) 245 250 constructed area (billion m2) 204 2,5 200 175 2.4 million tons billion m2 2,0 1
Slide 20: Consumer behavior
Consumer behavior China is expected to have more than 200 million vehicles in 2020 million CAGR 2002-2020(%) vehicles 209 China¹ 13.6 31 Korea 4.5 42 Brazil 3.5 288 USA 1.2 95 Japan 1.2 60 Germany 1.1 1 CAGR 1990-2004 = 12.0% Source: IMF 20
Slide 21: Supply outlook
Supply outlook Companhia 21 ill! Vale do Rio Doce
Slide 22: Iron ore seaborne supply
Iron ore seaborne supply 17 18 17 18 28 24 28 24 Sweden 83 83 Canada 70 70 229 229 254 254 204 204 227 227 India others 19 18 19 18 37 38 37 38 South America Brazil Africa 2005: 670Mt* 55 77 Australia others 2004: 603Mt *Note: Other seaborne sources include USA, Liberia, Mozambique, etc Other non-se
Slide 23: Major suppliers are investing heavily to expand production capacity
¾ Major suppliers are investing heavily to expand production capacity. ¾ Australia and Brazil will account for >80% of the announced increase in seaborne supply by 2010. CVRD is evaluating further expansions post 2008. Announced Other 9 expansions by 2010 S. Africa 20 Brazil 115 Australia 120 0 20 4
Slide 24: Capacity expansions only build minimum idle capacity
¾ capacity expansions will be sufficient only to build the minimum required level of idle capacity. 10% Iron ore industry idle capacity 8% historical average 7% 7% 5% 5% 5% 5% 4% 2% 0% 1% 1% 0% 0% -5% `00 `01 `02 `03 `04 `05 `06e `07e `08e `09e ´10e Idle capacity below 5% means technical deficit. So
Slide 25: Tight markets to stay
Tight markets to stay The supply response lag to market disequilibrium is being lengthened Shortages of equipment are contributing to an extension of lead times months ∆ 05/04 total – trucks +6 10-12 – tires +3 6 – loaders +4 8-10 – locos +9 15-18 – rails +2 6 25
Slide 26: Iron ore market – stronger for longer
Iron ore market – stronger for longer Iron ore producers are struggling to meet demand growth: . 9 rising CAPEX and operating costs 9 shortages of equipments, engineers and contractors Such issues are causing several delays in project execution even for established producers The traditional su
Slide 27: CVRD's response
CVRD ‘s response Companhia 27 Vale do Rio Doce
Slide 28: Investment capability is key
Investment capability is key The strong cash generation enables CVRD to develop large expansion projects to cope with the growing demand for raw materials related to the steel industry CVRD CAPEX* ferrous minerals 4,626 US$ million logistics** 4,161 others 1,335 2,118 + 59% 1,988 1,956 730 785 899 6
Slide 29: CVRD - iron ore production
CVRD - iron ore production CVRD iron ore production grew at 15% per annum from 2001 to 2005. With the new investments, the Company is expected to reach 300 Mtpy* in 2007 Mtpy 2001 133.8 2002 167.8 2003 188.3 2004 211.3 2005 233.8 2006E 264.4 2007E 300.0 * US GAAP 29
Slide 30: Iron ore expansion pipeline
Iron ore expansion pipeline Our world-class assets and the efficient logistics infrastructure provide important competitive advantages for CVRD We are developing six important iron ore projects: total capacity start-up investment increase US$ million Mtpy Carajás 85 Mtpy 296 15 2006 Carajás 100 Mtpy
Slide 31: Pellets expansion pipeline
Pellets expansion pipeline Global consumption of pellets to trend sharply higher: BF’s productivity improvements, environmental restrictions on sintering, decreasing lump ore supply, relevant growth on new DRI capacities (mainly in Asia and Middle East) We are developing three new pellet plants: tot
Slide 32: The aluminium business
The aluminium business Murilo Ferreira Executive Director Equity Holdings and Business Development 1
Slide 33: Agenda
Agenda CVRD aluminium business Market overview CVRD growth perspectives 2
Slide 34: Aluminium is the second largest business in CVRD portfolio
Aluminium is the second largest business in CVRD portfolio 2005 CVRD gross revenues: US$ 13.4 billion 2005 Adjusted EBITDA: US$ 6.5 billion Iron ore and pellets 2005 Manganese Gross revenues: Manganese and and ferro- ferro- Logistics Logistics US$ 1.4 billion alloys alloys EBITDA: US$ 551 million CV
Slide 35: CVRD has a clear strategy for the aluminium business
CVRD has a clear strategy for the aluminium business focus on the opportunistic in upstream aluminium partnership with clients scale cost technology competitive strategic association with main global industry players 4
Slide 36: Aluminium business operating structure
Aluminium business operating structure CVRD aluminium business Bauxite Alumina Aluminium MRN Alunorte Albras Valesul Start up: 1979 Start up: 1995 Start up: 1985 Start up: 1982 05 Prod: 17.2 Mt 05 Prod: 2.6 Mt 05 Prod: 446 kt 05 Prod: 93 kt CVRD share: 40% CVRD share: 57% CVRD share: 51% CVRD share:
Slide 37: Aluminium business is growing its importance in CVRD portfolio
Aluminium business is growing its importance in CVRD portfolio CVRD 2002 adjusted EBITDA CVRD 1Q06 adjusted EBITDA Non ferrous minerals Logistics 3.7% 4.7% Ferrous minerals 79.0% Aluminum Aluminum Ferrous 5.2% 12.2% minerals 78.8% Logistics 8.4% Non ferrous minerals Other 4.3% 3.7% $606 aluminium bu
Slide 38: Aluminium business has been constantly delivering growth
CVRD aluminium business has been constantly delivering growth to its shareholders Alunorte lines 4&5 MRN (17.2Mt), start up MRN (16.7Mt), Alunorte Alunorte (2.6Mt) and (2.5Mt) and Albras (435kt) Albras (446kt) $500 production records production records aluminium business $450 quarterly gross revenue
Slide 39: CVRD's project pipeline is one of the most competitive
CVRD’s project pipeline is one of the most competitive in the aluminium industry estimated estimated project capacity capex start-up status Paragominas 1 5.4 Mtpy US$ 352 million 1Q 07 under construction Paragominas 2 +4.5 Mtpy US$ 196 million 2Q 08 under construction Paragominas 3 +4.5 Mtpy n.a. n.
Slide 40: Agenda
Agenda CVRD aluminium business Market overview CVRD growth perspectives 9
Slide 41: Asia and Middle East were the fastest growing regions in aluminium production
In the past five years, Asia and Middle East were the fastest growing regions in aluminium production EUROPE 2000 2005 CAGR Russia 3,241 3,658 2.4% ASIA / MIDDLE EAST NORTH AMERICA Norway 1,033 1,374 5.9% Germany 644 636 -0.2% 2000 2005 CAGR 2000 2005 CAGR Other 2,893 3,282 2.6% China 2,841 7,806 22
Slide 42: Asia will be almost half of primary aluminium production by 2010
Asia will be responsible for almost half of world’s primary aluminium production by 2010. China will account for nearly one third 2000 2005 2010E L. AMERICA ASIA ex- ASIA ex- 9% China China 10% 13% N. AMERICA CHINA 24% 31% CHINA L. AMERICA 12% 7% ASIA ex- China N. AMERICA AFRICA L. AMERICA 11% 14% 5
Slide 43: Primary aluminium production is shifting to regions with lower energy cost
Primary aluminium production is shifting to regions with lower energy cost competitive advantages secure alumina supply access to technology energy low production costs large scale tier 1 regions Middle East, China and Russia tier 2 regions India and Africa Source: CVRD 12
Slide 44: World alumina production was not enough to keep up with demand growth
World alumina production was not enough to keep up with demand growth EUROPE 2000 2005 CAGR Russia 2,856 3,264 2.7% NORTH AMERICA Ireland 1,500 1,711 2.7% ASIA / MIDDLE EAST Ukraine 1,362 1,623 3.6% 2000 2005 CAGR Spain 1,122 1,452 5.3% 2000 2005 CAGR USA 4,269 5,601 5.6% Others 4,460 5,286 3.5% Chi
Slide 45: Alumina spot prices reached record highs
US$ per ton fe v 0 100 200 300 400 500 600 700 m -98 ai ag -98 o no -98 Source: Bloomberg v- fe 98 v m -99 ai ag -99 o no -99 v fe -99 v- m 00 a a g i -0 o 0 no -00 v fe -00 v- m 01 ai ag -01 Alumina spot price - LME o no -01 v- fe 01 v- m 02 ai 14 ag -02 o no -02 v- fe 02 v- Prices eased but still
Slide 46: Alumina market expected to remain tight in the near term
Although new projects were announced, market is expected to remain tight in the near term reaching balance by the end of 2006 world alumina forecast 2005-2010 (thousands tons) CAGR 2005 2006 …. 2010 05-10 world production 66,589 71,631 87,235 5.5% world demand 67.710 71,366 86,406 5.0% Surplus/Defic
Slide 47: Agenda
Agenda CVRD aluminium business Market overview CVRD growth perspectives 16
Slide 48: Consistent exploration plan for large, high-quality bauxite reserves
Consistent exploration plan for large, high-quality reserves enables new growth opportunities for CVRD in bauxite Guyana French Surinam Guiana AMAPÁ RORAIMA MRN Belém PITINGA ALBRAS/ALUNORTE Manaus PARAGOMINAS TIRACAMBÚ PARÁ MARANHÃO AMAZONAS 17
Slide 49: Vast bauxite reserves and good infrastructure make Brazil high potential
Vast bauxite reserves and good infrastructure makes Brazil the country with the highest potential for bauxite/alumina development mineral development potential index* 500 high growth potential 400 Guinea Resources / production years of production 300 Brazil 200 Jamaica Australia Suriname China Venez
Slide 50: Paragominas project is on time and on budget
Paragominas project is on time and on budget first phase of the project (5.4 Mtpy of bauxite) scheduled to come on stream by January 2007 Paragominas has 303.5 million tons of ore reserves @ 48.7% of Al2O3 development of mine and a 244 stockyards stockyards km pipeline for transportation of ba
Slide 51: Alunorte expansions
CVRD’s strategy strength and competitiveness is clear in Alunorte expansions… 6300 6300 line 7 5400 expansion III 5300 line 6 4500 4400 line 5 3800 3600 expansion II line 4 2700 2548 2562 2324 line 3 expansion I 1800 1627 1605 1656 1436 1527 line 2 1186 876 900 line 1 215 0 0 1995 1996 1997 1998 199
Slide 52: Lowest capex cost per ton of the industry
…with the lowest capex cost per ton of the industry $1,000 Worsley III $900 Gove Jamalco Jamalco CAR CAR II II $800 Worsley II Alumar Alumar $700 US$/ton $600 CAR CAR II $500 Worsley I Alunorte III $400 Alunorte I Alunorte II $300 $200 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Sour
Slide 53: Rationale for a new alumina refinery
Expertise, captive bauxite supply, infrastructure and low capex cost per ton creates the rationale for a new alumina refinery New alumina refinery to be built in Barcarena, Pará state, Brazil Paragominas mine will supply the bauxite needs Initial production capacity of 1.8 Mtpy Project conce
Slide 54: Planned expansions consolidate CVRD's leading position in aluminium
With planned expansions, CVRD consolidates its leading position in the aluminium industry 37.7 bauxite production 2005 14.6 alumina production 2005 14.3 14.2 CVRD #6 7.6 10.7 6.0 CVRD #11 6.6 4.4 4.3 6.1 5.5 5.0 3.7 3.1 4.3 4.3 4.0 2.3 2.0 1.5 2.2 1.6 1.5 bauxite production 2010 alumina production 2
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