I’m looking forward to April Fools Day because given the state of the global economy, we could all use some humor. So I got a kick out of this recent Forbes article in which Roger Agnelli, the CEO of giant iron ore producer Vale claimed “…China’s economy has stopped weakening and the global economy may stop declining in the second quarter.” It’s not that we have an issue with contrarian viewpoints, it’s just more a matter of trying to understand how absolutely nobody has published anything indicating the slowdown will stop in the second quarter of this year.
What’s perhaps even more intriguing about the comments relates to Vale’s own recent actions which include 1300 job cuts in early December, 5500 workers going on paid leave in mid-December and an announcement that further job cuts could be forthcoming. And just the day before this comment about the revised economic forecast, Vale said, “it has acted proactively to cut back production.” According to the article, Vale slashed production during the fourth quarter by 21%. But this month, Vale placed a $170m contract for tugboats and barges. The growth, according to Vale will come from Brazil and China.
There are three reasons Vale could be making such an announcement about a near term economic recovery:
- Vale plans to out-maneuver its competitors by being first to pick up the demand and thereby grow market share, this assumes the statement about economic growth indicators turning positive in China and Brazil is true
- Vale hopes that such an annoucement will somehow make everyone think that indeed demand is really picking up
- Vale is smoking something
I hope the truth lies somewhere between options one and two but I fear three is likely the most obvious explanation.