Increased global spending to build data centers, electrify economies, and upgrade infrastructure is fueling a commodities boom for Brazil's Vale, the world's largest iron ore producer, though the Iran war is raising costs and looms as a risk with the latest escalation.
Barron's on Tuesday spoke with Vale Chief Financial Officer Marcelo Bacci about the latest escalation in the Strait of Hormuz; China, Vale's largest market; and a board shake-up this month, with the resignation of Chairman Daniel Stieler.
An edited version of the conversation follows.
Barron's: What's the outlook for commodities like iron ore and copper?
Marcelo Bacci: Countries are investing in building their own capacity as a result of a lower degree of globalization. That's a boost to capital spending levels. AI is metal intensive -- iron ore but also copper -- and there is also a wave of investment in electrification, which is also metal intensive, and people are looking for a further reduction on the dependence on fossil fuels because of the war. This is all bullish for metals, especially iron ore and copper.
How does this global building boom compare to China's construction boom in the aughts that fueled a commodities supercycle?
That is difficult to replicate because the world is at a different level in terms of infrastructure building. We still see pockets of potential growth, though not as relevant to the China boom 20 years ago. India is still a net exporter of iron ore, but its steel industry is growing at a higher rate so it will start importing soon. Plus, the level of infrastructure needed, in India but also southeast Asia and Africa, is still very high.
China is still grappling with a sputtering economy and a property market that has yet to rebound. What does demand look like?
In the past two years, demand from the real estate sector went down significantly. But it was replaced by significant growth from industrial activity and manufacturing, a growth in exports, and infrastructure. Total demand from China has been stable for the past two years.
Plus, the depletion rate of existing mines in the world is increasing -- a reason supply and demand [dynamics have] been balanced.
What is the impact of the Iran war, and how are you thinking about the talk of tolls?
It hasn't impacted demand, but it had -- and continues to have -- an impact on costs, especially with the fuel we use for domestic transportation of iron ore from the mine to the port and in the trains. And then there's shipping fuel, which is relevant especially for us, as we are farther from China than our competitors in Australia.
We have a hedging policy that is protecting us from that cost increase, with oil hedges and about 90% to 95% of freight rates contracted for this year at lower prewar rates.
You have been able to pass on some of the costs. Does that become harder if oil goes back above, say, $90 a barrel?
Our expectation is that after the conflict is over, the price isn't going to go back to the level it was before because of some destruction of infrastructure. We don't expect it to stay at a high level. But no one knows when this will come to an end, so we keep increasing our protection levels.
If oil prices stay above $90 for longer, this will mean additional pressure on costs. The market is very balanced, so at the beginning of the war when oil prices spiked, iron ore prices spiked as well. So, the margin has been somewhat protected. At some point, depending on how big that effect is, it can create destruction of demand. It doesn't seem likely, but this is a concern we are following closely.
How are you thinking about AI spending?
There seems to be a lot baked into the projection of growth [for infrastructure investment announcements] that is very aggressive.
As someone supplying [metals needed for AI], supply for products like copper will hit a wall. It's difficult to increase copper production. Easier-to-access reserves are gone and we have to invest in more-difficult-to-access [copper] underground so the speed of production growth is slower than the pace of demand. If that continues, prices will have to respond for investments in more difficult areas. We are monitoring it but don't have a clear view about the right level of investments to support demand.
As a user of AI, it's creating opportunities, but not so much in back-office work. What really moves the needle is the technology applied to production. Applying AI reduces cost of exploration because we can drill fewer holes to get the same results.
Vale is generating strong cash flow. Do you see more dividends or buybacks?
We have a capital spending program of about $6 billion a year, with more investment going toward doubling the size of copper production. We have decided to be more conservative and want debt between $10 billion to $20 billion. We finished last year around $15 billion. Whenever net debt is on track to fall below $15 billion, we tend to distribute money through additional dividends or buybacks.
What are the corporate governance and strategic implications of the abrupt resignation of Vale's chairman earlier this month?
Previ, the pension of the Banco do Brasil, is our largest shareholder, and they decided to no longer appoint the chairman. As part of changes in their governance, they said they would support the election of an independent chairman.
That's a big change, and music to our ears as management. This election will be the first where we have two independent candidates: the current vice chairman and current lead independent director. In either case, its someone already here, and we don't envision any change in strategy.
Thanks, Marcelo.
Write to Reshma Kapadia at reshma.kapadia@barrons.com
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July 16, 2026 02:15 ET (06:15 GMT)
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