Vale plans to cut 25 million metric tonnes of high cost iron ore from its portfolio, but analysts say the move will do little to help the depressed price of the commodity.
Vale’s executive director, Peter Poppinga, says the decision is based on predictions that the iron ore market will remain oversupplied into 2016.
However, even with the production cuts, Vale says it still aims to produce 340 million tonnes of iron ore in 2015.
This means the 25 million tonnes it stops producing will be replaced by low-cost supply- a move which could trigger the further collapse of iron ore prices.
Last week the price of iron ore hit a new record low of $US44.10 per tonne. The commodity has since gained some ground to last close at $US49.90 per tonne.
Vale’s stocks were up 8.8 per cent on the NYSE, but analysts warn not to expect a major price rise for iron ore.
"This will not lead to higher iron ore prices in the short term – it could even have the opposite effect," Morgan Stanley analysts wrote in a report.
This is because it means more low-cost material will be hitting the market, doing little to impact supply and demand.