Vale, Brazil's largest exporter, said further local currency depreciation could counter cost rises and a slowdown in Chinese iron ore demand as it seeks to recapture market share from Rio Tinto and BHP Billiton.
The real, the worst-performing emerging-market currency in the past three months, would probably weaken to about 2.40 from 2.15 per US dollar, bolstering Brazil's competitiveness, said Jose Carlos Martins, Vale's executive director for ferrous and strategy.
China's iron ore and steel demand growth was set to slow to about 5 per cent from 10 per cent in the first five months of the year, he said.
"The Brazilian currency will devaluate further," Martins said last Friday at the company's Rio de Janeiro headquarters. "The slowdown in China is negative, devaluation is positive because not only our costs in dollars will be reduced but also investments will be lower."
Vale is seeking to return to profit growth and boost investor confidence by cutting costs, selling assets and focusing on the iron ore business, its most lucrative unit. The company, the worst-performing major mining stock this year, posted first-quarter profit that surpassed analysts' expectations for the first time in eight quarters.
The real has lost 7.8 per cent against the US dollar in the past three months, taking it to its lowest rate in four years as faltering economic growth and speculation the United States Federal Reserve will pare back monetary stimulus lured money away from Latin America's biggest economy.
May industrial production in China, where Vale sells almost 50 per cent of its iron ore shipments, grew a less-than-forecast 9.2 per cent from a year earlier, the weakest increase in the first five months of the year since 2009. China's economic expansion held below 8 per cent for the past four quarters, the first time that has happened in at least 20 years.
The world's biggest metals consumer is expected to expand 7.8 per cent this year, down from an 8 per cent pace forecast in April. The World Bank reduced its forecast to 7.7 per cent from 8.4 per cent in a June 12 report.
China could grow 7 to 8 per cent for the next two or three years as the economy shifted towards consumption and away from infrastructure, said Martins, who estimates he has spent 18 months in China since joining Vale in 2004.
"As they are moving more to consumption, it's less steel-intensive," he said. "That's a fact of life."
Shares in the world's third-largest mining company have fallen 31 per cent this year, underperforming the 19 per cent drop in Brazil's benchmark Ibovespa Index. BHP and Rio Tinto, the largest mining firms, fell 13 per cent and 21 in Sydney and London, respectively.
Iron ore prices dropped as much as 31 per cent from a 16-month high in February on weaker demand from China.