By Maria Lopez Conde, Contributing Reporter
RIO DE JANEIRO, BRAZIL – A number of companies created to make use of Brazilian mining giant Vale’s iron ore have shut down their operations in Carajás, home to the world’s largest iron ore mine, located in the northern state of Pará. Seven out of the ten companies that once operated in the area have halted production in the last four years, causing unemployment in neighboring cities.
According to an O Globo report, companies have shut down because crude iron production became economically unfeasible in the region. For one, the export price of iron ore, needed to make the “pig iron“, has become higher than the price of pig iron. Some local producers complain that they purchase iron ore from Vale at the same price as international buyers, but the cost of producing pig iron in the area has increased.
Secondly, the economic crisis that battered the raw material’s main buyer, the United States, affected pig iron sales, and more aggressive restrictions on illegal deforestation, which forced producers to guarantee a source of legal coal, one of pig iron’s main ingredients, drove up production prices. The inability to make a profit has led to factory shutdowns and dismissals.
In Brazil’s largely commodity-driven economy, iron ore is king. The country is the third largest iron ore producer in the world, producing 510 million metric tons of the mineral in 2012. Mining accounts for nearly four percent of Brazil’s GDP and about half of the country’s iron is sold to China, the global leader in iron ore production.
The Carajás Mine was developed after iron ore was found in the Carajás Mountains in the 1960s. Vale managed the construction of the complex, which began operating in the 1980s. Most of the company’s money is generated at Carajás and today, Vale accounts for sixteen percent of Brazil’s total exports.
Yet fluctuations of commodity prices are common. Last year, Vale faced lower world iron ore prices, driven by a Chinese slowdown. During a conference call to discuss its 2012 results with shareholders in late February, Vale’s CEO, Murilo Ferreira, explained that last year was particularly “challenging” for the mining industry.
“This low growth and uncertainty just fall on minerals and metal prices. Iron ore prices became much more volatile than before,” Ferreira admitted.
In Carajás, pig iron exports reached US$898 million in 2008, but by 2012, they had dropped to US$360 million. The shutdown of factories that had been built to use the area’s raw materials has left over 6,000 unemployed. Many of these workers have ended up in the neighboring city of Marabás.
Abreu Neto, partner at Maragusa, a factory built to make pig iron, explained Vale once supported the companies in the area, but that is not the case anymore.
“When the industrial city was created, twenty years ago, Vale encouraged it because it had no one to sell its raw material to. Now, the ore leaves the area and creates thousands of jobs in China,” Abreu told O Globo.
The factory closings has affected the neighboring town of Marabá. Its mayor, João Salame, told The Rio Times that Vale’s support is key to development in the region. According to Salame, Marabá’s population has jumped from 150,000 to almost 250,000 in a few years due to Vale’s activity and the city cannot cope with the growing number of unemployed and the mounting demand for public services.
“Here in Marabá, we end up with the social problems linked to the mine,” including high demand for education and housing. “We need Vale to help us to minimize the effects of the activity that the company benefits from,” Salame said in an interview, adding that a new revenue-sharing structure could help municipalities like his.
Although 2012 was marked by volatility for the mining company, Vale now has plans to create over 30,000 jobs to expand iron ore production in Serra Sul, in the Carajás Mountains.