By Paul Kiernan 

RIO DE JANEIRO -- Brazilian mining company Vale SA is back to forecasting iron-ore prices after a four-month rally in the market injected executives with a level of optimism not seen in years.

Vale's iron-ore director dusted off his so-called crystal ball Thursday to predict that prices for the commodity will have a "floor" of $70 to $75 and could average above $80 for the year.

"In summary, 2017 is going to be a very strong year," the executive, Peter Poppinga, said in a conference call. "Steel demand is greater than in 2016. New supply that's going to come is less than in 2016, and stocks are unbalanced. Therefore, prices will be significantly higher than in 2016."

Vale is the world's largest iron-ore producer, the raw material of steel, and analysts routinely ask its executives for their price forecasts during quarterly conference calls.

Mr. Poppinga's predecessor, José Carlos Martins, was often happy to provide them, joking that he had a crystal ball that allowed him to predict where the market was headed. Until early 2014, he maintained that the prevalence of high-cost supply in China meant that prices below $110 a ton couldn't be sustained.

Vale and other mining companies acted accordingly, investing huge sums of capital to expand production. But they ended up flooding the market with ore. That, combined with Chinese government measures to shutter unprofitable industrial operations, triggered a multiyear slump that sent prices below $40 by last year.

Vale officials have largely refrained from trying to predict prices since Mr. Martins left the company in late 2014.

"Our crystal ball is broken," Chief Executive Murilo Ferreira said in December.

Mr. Poppinga's willingness to make a forecast underscores how far the market has come since then. Iron ore currently costs about $90 a ton, up almost 60% from four months ago.

The end-of-year rally helped Vale close 2016 with a $3.98 billion net profit, compared with a $12.13 billion loss in 2015. The company proposed Thursday a dividend payment of 4.67 billion reais ($1.52 billion).

Not everyone thinks the high prices will last. Credit Suisse said in a report earlier this month that iron ore is likely to fall back to an average of $48 a ton in the second half of this year. The futures curve also suggests a retreat in prices.

Write to Paul Kiernan at paul.kiernan@wsj.com

 

(END) Dow Jones Newswires

February 23, 2017 15:19 ET (20:19 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.
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