Strategic Alliance with Vale
Founded upon iron ore, the relationship between Mitsui and Vale is evolving and expanding into different fields worldwide.
In 2003, Mitsui & Co. acquired a 15% equity stake in Valepar, the holding company of Vale S.A., the world’s largest iron ore supplier. Mitsui and Vale already had a strategic relationship based on their joint management of the Brazilian resources company Caemi Mineração e Metalurgia S.A., but the 2003 deal brought the two companies even closer. The 15% shareholding gave Mitsui & Co. the right to appoint officers to Vale’s board and to participate directly in the company’s management.
Mitsui first invested in the Brazilian iron ore business in the 1970s. Its role then was that of a traditional Japanese trading company—it funded the development of iron ore mines in Brazil so their products could be sold to steel mills in Japan for a commission (“the buyer’s agent model”). Over time, the scope of Mitsui’s activities widened to include pure-play investment in iron ore assets (1986); participation in the management of mining companies (1997); and partnering with mining giants (2001). In this context, the broad-based strategic alliance established between Mitsui and Vale, followed by Mitsui’s 2003 equity participation in Valepar, was the logical culmination of Mitsui’s three decades of experience in the Brazilian iron ore sector.
Both parties to the alliance have their own distinct strengths. In addition to being one of biggest suppliers of iron ore and nickel, Vale has significant presence in copper, gold, metalogical coal, manganese and fertilizer. Mitsui, meanwhile, is a hands-on player in the international market with an extensive range of capabilities across multiple fields. As Vale expands, diversifies, globalizes and the new field of low carbon society, Mitsui and its various business units can help bring in capital, expertise and strategic partners, creating new, cross-divisional businesses of its own along the way. Currently, five out of Mitsui’s 16 business units are involved with Vale. Below are some examples of how Mitsui and Vale are developing new businesses in new regions.
General cargo transportation in Brazil
Brazil is the world’s No. 1 exporter for many agricultural products including soybeans, sugar and ethanol; the country also has 36% of the world’s potential new supply of arable land. VLI, is an integrated freight transportation company, including inland terminals, railways and ports. And VLI has the concession to operate 10,700 kilometers of rail and four ports in Brazil’s southeast and northeast, where agricultural production is growing fastest but where export growth is lagging due to transport bottlenecks.
On average, crops in Brazil have to travel over 1,000 kilometers to get to port. Although rail is the most cost-effective form of transport, Brazil currently moves over half of its agricultural produce by truck, leading to the so-called “Brazil cost.” To bring these costs down, the Brazilian government is aiming to increase rail’s share to around 35% in the next few years.
Mitsui acquired 20% of VLI, Vale’s logistics arm, for R$1.51 billion (US$700 million) in April 2014. Mitsui is leveraging its expertise in logistics management and maintenance service in rolling stock leasing and port terminal management to contribute to the upgrading of VLI—and of Brazil’s entire agricultural export infrastructure.
An alliance based on trust
The alliance between Mitsui and Vale extends beyond their own immediate business concerns. Both companies are active participants in the Joint Meeting of the Japan-Brazil Economic Committee, an event established in 1973 by the Keidanren (Japanese Business Federation) to deepen economic links between the two countries and to propose ideas to their two governments on subjects ranging from trade liberalization to collaborative investment in energy, natural resources, and transportation infrastructure.
To strengthen the bonds between Mitsui and Vale at a person-to-person level, the two companies launched a unique exchange program in 2003. As of March 2022, around 150 people have taken part from each side. The exchange helps to reinforce the companies’ relationship at the grassroots level while familiarizing participants with the working practice and cultural norms of their counterparts.
Heading into the future, Mitsui is committed to leveraging its wide capabilities and geographic reach to create even more new businesses with Vale to serve the world’s evolving needs.
Posted in September 2015
Updated in April 2022