Brazil's Vale eyes 2017 iron ore output at low end of forecast

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By Alexandra Alper and Marta Nogueira

RIO DE JANEIRO, July 20 (Reuters) - Brazil's Vale SA , the world's largest iron ore producer, said on Thursday that iron ore output would close the year near the bottom of its forecast of 360 million to 380 million tonnes, despite record second-quarter production.

Vale (Swiss: VALE.SW - news) , said iron ore production reached 91.849 million tonnes in the April to June period, a record for a second quarter, up 5.8 percent from 86.823 million tonnes in the same period last year. Pellet production rose 21.5 percent to 12.2 million tonnes last quarter from a year earlier.

Iron ore output was spurred by record production of 41.5 million tonnes in Vale's so-called northern system, which groups together Carajás, Serra Leste and S11D mines in the state of Para.

The S11D mine should add 75 million tonnes of production when it reaches peak output in 3-1/2 years, lifting Vale further over Australia's Rio Tinto Ltd (Hanover: CRA1.HA - news) , which had rivaled its iron ore output after years of stagnation.

Vale said the S11D mine is "advancing as planned," but reported plans to cut high silica ore production in southern Brazil by 19 million tonnes in the second half of 2017.

Preferred shares (Lisbon: INAP.LS - news) of Vale fell 3.2 percent in afternoon trading.

In a client note, Clarkson Platou securities described the update as "a bit disappointing ... There is no change to our view that Vale's second-quarter earnings next week will be lower than expected."

Shipments of iron ore and pellets from Brazil and Argentina totaled 81.6 million tonnes in the second quarter, 4.4 million tonnes higher than in the same period of 2016.

Vale moved more of its ore abroad, boosting the percentage of offshore stock to 28 percent from 15 percent, making it easier to respond to market demands by blending final products closer to customers, especially in Asia.

Blended volumes in Asia totaled 14.8 million tonnes in the second quarter, 3.7 million tonnes above the volume in the same period last year. The move to increase inventories will temporarily lower sales volume, the company warned.

Vale, one of the world's top nickel producers, said production of that metal fell 16 percent to 65,900 tonnes from the same period last year, mainly due to the reconstruction of a furnace and planned maintenance in Sudbury, Canada.

The company cut its expected nickel output forecast for the year from 317,000 tonnes to 295,000 tonnes. (Reporting by Alexandra Alper and Marta Nogueira; Editing by Frances Kerry and Diane Craft)