UPDATE 3-Vale layoffs expose Brazil vulnerability to crisis
(Updates with new quotes from Vale's sales director)
By Reese Ewing and Denise Luna
RIO DE JANEIRO, Dec 3 (Reuters) - Vale (VALE5.SA: Quote, Profile, Research, Stock Buzz), the world's largest iron ore miner, said on Wednesday it is laying off 1,300 workers and putting 5,500 more on paid leave, the latest sign of Brazil's exposure to the international crisis.
Brazil's second-biggest firm said that the credit crisis and weak demand had led it to make the layoffs and enforced leaves, which in total account for 11 percent of its global work force of 62,000 workers.
"We have a credit crunch, contraction in the economy, huge destockings taking place of raw materials and the demand is really dull," said Fidel Blanco, managing director of iron ore sales at Vale at a Metal Bulletin steel conference in Paris.
The dismissals will occur globally, but some 20 percent of them will occur in Minas Gerais, Brazil, where some of Vale's main iron ore mines are located.
On Oct. 31, Vale announced that it would cut its 315 million tonne a year iron ore output by 10 percent as it braced for the global economic slowdown caused by the credit crisis.
Its main clients abroad, steel companies, have slashed output and cut labor as demand for steel from the construction sector all but disappeared.
ArcelorMittal (ISPA.AS: Quote, Profile, Research, Stock Buzz), Vale's biggest client, announced in the past weeks that it would dismiss 9,000 of its workers, after announcing deep production cuts weeks earlier.
Vale's clients in Brazil have been taking similar belt-tightening measures to align themselves with the current market realities.
Blanco said, "We do not think we are going to have another year of raw materials (prices) soaring."
Vale, whose shares closed little changed on Wednesday at 22.46 reais, is about to enter into negotiations with its main clients in the coming weeks to set iron ore prices for 2009.
The layoffs by Vale, one of Brazil's two leading companies along with state oil company Petrobras (PETR4.SA: Quote, Profile, Research, Stock Buzz)(PBR.N: Quote, Profile, Research, Stock Buzz), are the latest evidence that emerging markets are suffering from the crisis and have not "decoupled" as some economists hoped.
GROWING IMPACT
Despite initial comments by President Luiz Inacio Lula da Silva that Brazil was immune to the crisis, the fallout is starting to be felt in the economy and analysts are sharply scaling down their growth forecasts for next year.
Brazil's once-thriving automobile industry has temporarily laid off tens of thousands of workers over the past months to reduce inventories. Large local companies like steel producer Gerdau (GGBR4.SA: Quote, Profile, Research, Stock Buzz) and Petrobras are postponing capacity expansion projects. And Brazil's booming construction industry is starting to show signs of slowing.
"Vulnerability exists," economist Alexandre Gallotte at the Tendencias consultancy told Reuters. "Brazil is vulnerable on two fronts: to external demand and to domestic demand."
One of the pillars of Brazil's economic growth over the past year has been domestic demand, fueled by increased buying power among Brazil's large population of poor.
But consumer confidence has begun to falter in reaction to the crisis.
"Domestic demand is subject to consumer sentiment which has started to weaken," said Gallotte. (Reporting by Denise Luna and Reese Ewing; Editing by Stuart Grudgings and Jim Marshall)
