R 221835Z JUN 09
FM AMCONSUL RIO DE JANEIRO
TO SECSTATE WASHDC 4915
INFO AMEMBASSY BRASILIA 
AMCONSUL SAO PAULO 
AMCONSUL RECIFE 
USDOC WASHDC
NSC WASHDC

UNCLAS RIO DE JANEIRO 000151 
 
 
STATE PLEASE PASS TO EX-IM BANK 
 
E.O. 12958: N/A 
TAGS: EMIN EFIN EINV EIND ETRD BR
SUBJECT: EXIM MEETING WITH BRAZIL MINING GIANT VALE 
 
¶1. Begin Summary: On May 11-12, U.S. Export-Import Bank (ExIm) 
officials, accompanied by Ambassador Sobel, met with finance 
executives from Brazilian mining conglomerate Vale to discuss access 
to ExIm financing.  Vale has expressed a preference for using ExIm 
financing to purchase equipment and capital goods from the United 
States; however, Vale views ExIm's Maritime Administration (MARAD) 
requirement to use American shippers as rendering its terms less 
competitive than those offered by lenders in Europe and Asia. 
Consequently, Vale has increasingly turned to China for trade and to 
other Export Credit Agencies (ECAs) for financing.  Vale expressed a 
desire to arrive at a permanent solution to make U.S. imports more 
attractive.  Ambassador Sobel proposed that Commerce and ExIm 
develop a program to guarantee U.S. exports to Vale which could 
eventually become a pilot for boosting U.S. exports to other 
countries.  As a next step, he suggested that Vale executives meet 
with ExIm officials and Commerce Secretary Locke in Washington DC in 
July on the margins of the U.S.-Brazil CEO Forum to gain broader 
support for this initiative.  End Summary. 
 
MARAD REQUIREMENTS REDUCE US COMPETITIVENESS, SAYS VALE 
 
¶2. On May 11, the Ambassador, ExIm's Chief Operating Officer (COO) 
John McAdams and Regional Director Xiomara Creque, and Rio 
Commercial Officer met with Vale's Director of Finance Guilherme 
Cavalcante and with General Manager for Funding Jose Penedo.  This 
cable summarizes both meetings, which followed up initial meetings 
held by Consulate officials in October 2008. 
 
¶3. Vale, the second largest company in Brazil after Petrobras, is a 
major mining conglomerate with a capital expenditure (CAPEX) in 2008 
of U$11 billion.  Despite the financial crisis and a 40 percent 
reduction in global trade, Vale projects a 2009 CAPEX of U$7 
billion, making it an important potential customer for U.S. 
exporters.  (Note: Vale has raised U$2.5 billion from Brazil's 
National Development Bank (BNDES) and various ECAs despite the 
credit crunch, so they are in a healthy position to procure goods 
internationally. End Note).  Vale prefers to use ExIm financing to 
purchase equipment and capital goods from the United States; 
however, Vale executives stated that Maritime Administration (MARAD) 
shipping requirements make ExIm terms unattractive.  Consequently, 
Vale has increasingly turned to China for trade and to other Export 
Credit Agencies (ECAs) for financing.  Vale expressed its desire to 
arrive at a permanent solution with ExIm to make U.S. imports more 
attractive - suggesting greater flexibility in U.S. shipping terms 
or perhaps a blanket waiver for MARAD requirements -- and emphasized 
that it was in the United States' best interest to do so, to avoid 
losing further ground to China and other emerging markets that are 
outpacing the United States in their share of international economic 
growth. 
 
¶4. The MARAD policy requires that shipments of U.S. goods greater 
than U$20 million be carried by U.S. flag shippers.  Unfortunately 
U.S. shippers tend to be more expensive, Xiomara Creque admitted. 
She said that while ExIm had to abide by the U$20 million ceiling, 
it was actively seeking creative solutions to Vale's dilemma.  ExIm 
has already discussed price competitiveness with MARAD, she said, 
highlighting that several deals have been lost due to this policy. 
John McAdams affirmed that ExIm has established a dialogue that 
could pave the way for Vale and other companies to get better 
shipping rates.  McAdams envisions MARAD assisting exporters in 
structuring their requirements and then reviewing the final bids 
with the U.S. exporters.  Vale welcomed this idea and said that such 
an arrangement would make U.S. exports more attractive.  McAdams 
added that this topic would be a high priority for Ex-Im's incoming 
Chairman.  He also discussed direct loans, stating that ExIm's 
priority for this year was to fill the gap left by commercial 
lenders by offering qualified borrowers access to ExIm's balance 
sheet.  McAdams opined that it might be easier to negotiate with 
MARAD now given the economic crisis and resulting 40 percent drop in 
global trade, and pledged to work with MARAD and Vale to discuss 
more competitive terms. 
 
VALE TURNS TO CHINA 
 
¶5. Vale noted its success in the past in obtaining MARAD waivers, 
working through a private consultant (who had previously been a 
MARAD Director).  Vale Finance Director Cavalante agreed that, while 
it might be easier to get better rates now that international orders 
have dropped to an all time low due to the financial crisis, Vale 
would be in the same situation once trade recovered and prefers a 
more permanent solution.  Vale has increasingly turned to China for 
business opportunities and to other Export Credit Agencies (ECAs) 
for financing, Cavalcante said.  He also stated that due to ExIm's 
own restrictions imposed by OECD guidelines and U.S. policies, Vale 
was putting equipment purchases from the United States on hold (he 
mentioned 44 trucks from Caterpillar), and was seeking financing 
from other ECAs in Japan, Korea, China, Germany and Italy that 
offered  more flexible terms.  (Note: OECD guidelines restrict ExIm 
to financing 85 percent of the purchase with 10 year payment terms 
depending on the value of the export.  Other non-OECD countries like 
China do not have to adhere to these rules; however, Vale pointed 
out that other OECD countries such as Germany and Italy are 
violating these rules by employing market windows where they offer 
better terms to make their goods more competitive to buyers like 
Vale. End Note).  Cavalcante added that the most important terms for 
Vale were tenure (7-12 year loans) and flexible disbursement.  He 
said that Vale could easily obtain five-year loans from any bank or 
ECA.  He added that Vale wants to purchase more equipment (trucks 
and locomotives) and capital goods from the United States, due to 
quality assurance and geographical proximity, and would use ExIm 
financing if it could offer more attractive terms and if the MARAD 
restrictions could be permanently waived. 
 
¶6. China is quickly closing the gap on product quality, Cavalcante 
said, and it will only be a matter of time before they can compete 
with Caterpillar on that basis.  He provided examples of major 
purchases that Brazil is already making from China.  Thyssen Krupp 
has recently purchased a coking plant and, while Chinese policy of 
sending Chinese workers to install equipment goes against Brazilian 
local content requirements, the pricing and terms offered were too 
good to pass up.  Second, Vale has purchased an entire 
thermoelectric plant for its Barcarena site to demonstrate that 
China's technological compatibility or "plug and play" capability. 
Vale is also negotiating long-term financing to build 12 ships at 
Chinese shipyards due to pricing and port depth factors.  Cavalcante 
believes that, if this trend continues, the United States runs the 
risk of the dollar losing ground as the currency of world trade. 
For example, an emerging market trading system is evolving where 
Vale exports iron ore to China which in turn exports equipment to 
Brazil.  The next logical step is to substitute the U.S. dollar for 
a basket of currencies.  He stated that long-term U.S. financing 
(with 7-12 year terms) could preserve the U.S. dollar as the global 
trade currency and maintain or build U.S. company competitiveness 
abroad. 
 
¶7. More flexible ExIm financing and the lifting of MARAD 
requirements would stimulate more U.S. exports and boost the U.S. 
economy, Cavalcante argued.  Vale is negotiating a U$8 billion line 
of credit with China pending pricing negotiations on iron ore sales 
to China's steel mills, he noted.  They have already signed an MOU 
and President Lula's trip to China on May 18 further strengthened 
the Brazil-China trade relationship.  Cavalcante expects the final 
agreement to be signed in the next few months depending on the iron 
ore price negotiation.  He highlighted that Vale currently depends 
on China for 75% of its iron ore sales because it is too expensive 
to ship to the United States.  Ambassador Sobel argued that Vale was 
putting itself in a potentially precarious position by relying so 
heavily on China.  He assured the Vale that ExIm and Commerce would 
work together to provide U.S. supplier lists and offer attractive 
finance terms, and to help Vale create a better balance among their 
trading partners. 
 
NEXT STEPS 
 
¶8. Ambassador Sobel suggested that Commerce and ExIm develop a 
program to guarantee U.S. exports to Vale, which could eventually 
serve as a pilot for boosting U.S. exports to other countries.  He 
proposed that Vale executives meet with ExIm officials and Commerce 
Secretary Locke in Washington DC on the margins of the upcoming 
U.S.-Brazil CEO Forum in July to gain broader support for this 
initiative.  McAdams affirmed that ExIm should be more present in 
Latin America and said that he would propose greater activity and an 
expanded presence to the incoming Chairman.  Vale agreed to provide 
ExIm with a sample framework agreement with a non-OECD ECA to help 
facilitate the structuring an agreement with ExIm, noting ExIm's 
creative efforts in Mexico and also in Brazil (such as its U$2 
billion preliminary commitment to Petrobras). 
 
¶9. On the broader issue of our bilateral relationship, Vale and USG 
officials discussed other areas for possible cooperation.  ExIm 
showed a great deal of interest in Vale's environmental program for 
reforestation in the Amazon rainforest (a U$200 million project that 
Vale will soon open for global partner participation).  Ambassador 
Sobel thought that this initiative could be of particular interest 
to the White House.  ExIm also expressed interest in working with 
Vale on projects in Colombia and Africa.  The Ambassador believes 
USAID might consider Vale's school building initiative in Mozambique 
an interesting project as well. 
 
MARTINEZ