Brazil May Tax Ore Exports, Seek More Steel Plants

Brazil, the world's second-biggest iron-ore exporter, may start taxing shipments of the steelmaking raw material as it seeks to lure investment in domestic steel plants, Energy and Mining Minister Edison Lobao said.

Brazilian President Luiz Inacio Lula da Silva has been pushing Vale SA, the world's biggest iron-ore miner, to step up investments in steelmaking and create more jobs in the country instead of sending ore abroad for processing. The government "wants more" from Vale than the $17 billion it plans to invest in Brazilian steelmaking through 2014, Lobao said.

"We are thinking about imposing an export tax on iron ore and removing taxes on finished" and value-added goods such as steel and steel plates, Lobao said late yesterday in an interview at his office in Brasilia. "It makes no sense to export iron ore to China and then buy Chinese steel plates."

The introduction of a tax in Brazil, which provided 36 percent of global exports last year, may boost spot prices for ore and raise competition from mills in China and Japan for Australian ore.

Vale rose 2.9 percent to 42.46 reais at 12:35 p.m. in Sao Paulo trading. The stock has gained 35 percent in the past 12 months, less than the 53 percent gain for Brazil's benchmark Bovespa index.

'Trade Risk'

"It sounds bullish because Brazil is the center of the world for high-quality iron-ore supply," Tom Price, a Sydney- based commodity analyst with UBS, said today by phone. "The issue certainly for the big mills is that they all use Brazilian ore, so this trade risk will freak China and Japan out."

Australia is the world's biggest supplier of seaborne iron ore and home to mines of Rio Tinto Group and BHP Billiton Ltd., the world's second-biggest and third-largest ore producers, respectively. Rio Tinto fell 0.6 percent to A$66.78 at 2:19 p.m. Sydney time on the Australian stock exchange, while BHP, the world's biggest mining company, rose 0.3 percent to A$39.73.

Lula is trying to expand Brazil's steel industry to bolster the manufacturing industry and ensure domestic supply of the metal as state-controlled oil company Petroleo Brasileiro SA prepares to expand output and purchase new drilling platforms, rigs and ships. Brazil is developing an offshore area that contains the biggest oil field discovery in the Americas in more than 30 years.

Finance Ministry

The steel measure needs the Finance Ministry's endorsement to go forward, Lobao said. The ministry didn't return calls seeking comment on the plan.

Vale's press office declined to comment when reached by Bloomberg News today.

"We don't want to drown mining companies with taxes," Lobao said. "We want to be reasonable."

The government may create tax incentives to lift fertilizer output, Lobao said. Latin America's biggest economy imports 91 percent of its potash needs, 49 percent of the phosphates it uses and 75 percent of its nitrogen-based fertilizer raw materials, according to Joao Cesar de Freitas Pinheiro, fertilizer minerals chief at the Energy & Mining Ministry.

Vale agreed Jan. 23 to buy Bunge Ltd.'s fertilizer assets in Brazil for $3.8 billion in cash.

Vale's Role"We must quickly move to produce fertilizers here and Vale will be a very important part in this," Lobao said.

The Brazilian oil company, known as Petrobras, and Vale should team up to explore the Nova Olinda do Norte potash mine in the Amazon region, the minister said.

The government is also studying a new tax system for the mining industry that may include higher royalties, Lobao said, without giving details.

Vale is controlled by a group that includes Previ, the pension fund of state-controlled Banco do Brasil SA; Bradespar SA; Mitsui & Co. and Grupo Opportunity. The government holds 6.9 percent of voting capital through state-controlled development bank BNDES.

The company was founded by Brazilian dictator Getulio Vargas in 1942 to supply Cia. Siderurgica Nacional SA and privatized in 1997.