OREANDA-NEWS. January 16, 2012. Brazilian iron ore giant Vale said the heavy rains that prompted it to cut production and declare force majeure this week will have "minimal" effects on world iron ore supply, prices and the company's revenue. Vale has lost 2 million tons of production due to heavy rains in Brazil's southeast since around December 25, or less than 1 percent of normal annual production of 300 million metric tons.

Vale iron ore chief Jose Carlos Martins told reporters the company could make up for some or all of the lost production by ramping up output during the rest of the year.

"I think any effect will be very small," Martins said on a conference call. "We can recover part or all of the production lost later."

Iron ore with 62 percent iron content was little changed on Thursday, falling 0.1 percent to USD 142.20 a tonne in the Chinese spot market.

Vale declared force majeure on iron ore shipments from its Southeastern Brazil System on Wednesday, as heavier-than-usual seasonal rains in the central highland state of Minas Gerais, hampered operations at mines, railways and ports

The region supplies about two-thirds of Vale's output.

"The force majeure will remain until the weather situation changes," Martins said. He added that lost Brazilian production is equal to just 0.2 percent of the world's annual seaborne iron-ore exports.

The rainy season between December and March often leads to a drop in Brazilian iron ore production as open-pit mine walls are threatened by landslides, railway lines are blocked or damaged and rivers overflow.

Fifteen people have been killed so far this year in Minas Gerais by floods and mudslides.

Experts said heavy rains in Brazil's key iron ore producing region should subside in coming days, with forecasts calling for less rain during the second half of January.

The rains are expected to move away from Minas toward Sao Paulo state in the coming days said meteorologist Marcia Haegely of Somar, a Sao Paulo weather consultancy.

Vale's mining operations remain normal in Northern System despite seasonal heavy rain, Martins said. The northern system, in Brazil's Amazon, includes Carajas, Vale's largest mine.

Vale's preferred shares its most-traded class of stock fell 1.1 percent at 39.38 reais.

Some analysts expect rain in Brazil, export restrictions in India and cyclone-related port shutdowns in Australia to increase the price of seaborne ore in the short term.

Iron prices may have to increase by USD 10 per tonne to "compensate for Vale's lower volumes and higher costs," Goldman Sachs Group analyst Marcelo Aguiar estimated.

Itau BBA analyst Marcos Assumpcao said Vale's halt in shipments could help iron-ore prices rise. Vale may lose 5.3 million tonnes of potential iron-ore shipments in the first quarter of 2012 because of rains, nearly triple the losses so far, U.S. investment bank Morgan Stanley said.

That's less than half of the 12.5 million tonnes lost to rain in the first three months of 2011, Morgan Stanley analysts said.

Vale said exports to Europe could be affected more than shipments to Asia, which is a much longer journey from Brazil.

As of 4:06 p.m. (1806 GMT) 16 bulk carriers were at anchor off the Port of Tubarao waiting to dock and load 2.8 million tonnes of ore, according to Vale's Web site.

Another four ships with orders to load 881,200 tonnes are scheduled to arrive off Tubarao by Saturday.

Some ships destined for Tubarao, Brazil's largest port by volume shipped, have been shifted to smaller terminals like Guaiba and Itaguai near Rio de Janeiro, Martins said.

Martins said Vale is in the process of increasing its supply buffers to keep shipments more stable in the future, with strategic distribution centers and larger ships.

A giant distribution center is planned for Malaysia and the planned 35 vessel fleet of "Valemax" ships -- 400,000 deadweight tonne freighters that are some of the largest afloat -- will be able to hold 14 million tonnes of ore, he said.