OREANDA-NEWS. Brazilian mining giant Vale hasn't seen a deterioration in China's appetite for iron ore despite the recent tumult in world markets and hopes to follow through with expansion plans, even as its shares trade near four-year lows.

An aggressive campaign by the Chinese central bank to rein in credit last month, combined with an ongoing slowdown in the world's No. 2 economy and talk of an end to the U.S. Federal Reserve's bond-buying program, have sent the dollar higher and damaged sentiment toward commodities and emerging-market assets.

But Jose Carlos Martins, Vale's executive director of ferrous minerals and strategy, said the company has felt "no negative impact in terms of demand" and sees a silver lining in the recent depreciation of the Brazilian real. Vale, the world's number three mining company and top producer of iron ore, mines the key steel ingredient in Brazil and sells most of it abroad, at dollar-denominated prices.

"Putting everything together--the positive and negative effects of all this confusion--the truth for us is that we haven't had big changes in the scenario for iron ore," Mr. Martins said in an interview. He noted China's renminbi is "one of the only currencies in emerging countries that hasn't suffered," meaning Vale's costs relative to Chinese iron-ore producers have declined.

Still, Vale's preferred shares are down 34% this year, having underperformed Brazil's Ibovespa stock index as well as rival mining majors BHP Billiton PLC (BBL) and Rio Tinto PLC (RIO). While analysts said the Brazilian government's long-awaited proposal for new mining legislation in June reduced some downside risks, the news provided only brief respite for Vale's shares.

The stock has been highly sensitive in recent months to economic data from China, its biggest market, which produces half the world's steel and sets global benchmark prices for iron ore. Investors fear an ongoing effort by Chinese authorites to shift their economic model toward consumption and away from investment could deal a blow to growth and undermine demand for metals.

Mr. Martins, who travels frequently to China and believes he knows it "better than a lot of analysts," says the country's high savings rate will give its government flexibility as it adjusts economic policy.

"In spite of all the problems, what I see from the Chinese authorities is an extraordinary pragmatism when it comes to the economy," he said. "Even now, with the whole world worried about liquidity, they squeezed liquidity. And it's an absolutely orthodox measure that not even the boys in Chicago would have done."

Mr. Martins said there's an "asymmetry" between the market's short-term perceptions, reflected in Vale's share price, and the long-term nature of the mining business. The Chinese cash squeeze, he said, should ultimately prove "positive" by leaving the economy on sounder footing.

With the Chinese population expected to continue migrating to cities and requiring more infrastructure and housing, Vale expects the country's steel production to peak around 1 billion tons per year between 2025 and 2030, up from nearly 800 million tons at present. As a result, Mr. Martins, said demand for iron ore will remain strong, albeit without the "exhuberant" growth rates seen in the past decade.

"I'd say that today the bigger impact on pricing comes from the supply side, rather than the demand side," he said.

Increasing production from rival miners like Rio Tinto and BHP Billiton in Australia has weighed on the iron-ore market since the first quarter, when benchmark prices approached USD 160 per ton. The Steel Index's reference price for ore with 62% iron content settled last week at USD 116.5 per ton.

"We believe this situation will linger in the third quarter, until the additional production is absorbed," Mr. Martins said. "But we believe in some recovery in prices toward the end of the year. Nothing brilliant."

He also noted benchmark iron-ore prices have repeatedly found support at USD 110 per metric ton, a threshold below which China's higher-cost miners become unprofitable and stop producing.

"We have a low cost and very good profitability with prices in that area of USD 110," Mr. Martins said. "Even below that level, we can generate a return on investment.

But given the uncertain outlook for Chinese growth, some analysts have questioned Vale's plan to invest nearly USD 20 billion in new iron-ore production capacity at its Carajas mining complex, in the northern Brazil, by 2017.

Paul Gait, a senior analyst at Bernstein Research who has a buy recommendation on Vale's shares, says he still prefers Rio Tinto for exposure to iron ore due to its "capital discipline [and] more reasoned approach to volume growth." He worries Vale's management is too focused on regaining iron-ore market share lost in recent years, rather than maximizing value for shareholders.

Colin Hamilton, research head at Macquarie Commodities Research, said the massive volumes of high-quality, low-cost iron ore Vale seeks to unearth at Carajas could drive out smaller producers and "kill the market."

Mr. Martins said volatility in iron-ore prices is making it tough for start-up mining companies to obtain financing for new projects. That should mean less supply growth than previously expected, benefitting established players with competitive, low-cost mines.

Vale believes the new mine it's opening at Carajas, known as S11D, will be such an asset.

"Carajas is a mine would keep producing even if everything else in the world stopped, because it has a product of high quality and low cost," Mr. Martins said.

Vale's iron-ore output has essentially remained flat since 2007, largely as a result of delays in environmental licensing for projects. Most of its production takes place in Minas Gerais, a populous state in southeastern Brazil where mining companies face competition for land and water from farmers and other locals, or at Carajas, in the ecologically sensitive Amazon. Vale's rivals in western Australia, on the other hand, operate primarily in uninhabited desert.

"I think it's healthy growth, a company recouping its historic market share," Mr. Martins said of Vale's plan to increase iron-ore output to around 400 million tons in 2017 from an expected 306 million tons this year. "When we have conditions to recover we're going to recover, but with caution and really a lot of concern to not make investments that don't offer returns."