Vale Falls After Reporting Declining Profit, Output

Vale SA (VALE5), the world’s second-largest mining company, rose the most in a week after Chief Executive Officer Murilo Ferreira said the company will rebound from weak sales in the first quarter.

Vale rose 1.7 percent to 41.78 reais at 4:28 p.m. in Sao Paulo, the biggest gain since April 18. It earlier fell to the lowest in more than six weeks after profit dropped for a third straight quarter on declining iron-ore prices and output. Before today, Vale fell 12 percent in the past 12 months, compared with a 7.8 percent decline in the benchmark Bovespa Index. (IBOV)

Net income slumped 44 percent in the quarter after slowing Chinese demand pushed down iron-ore prices and heavy rains curtailed production and raised costs. It fell to $3.83 billion, or 74 cents a share, from a record $6.83 billion, or $1.29, a year earlier, Rio de Janeiro-based Vale said yesterday in a regulatory filing. Net sales fell 16 percent to $11.1 billion.

“The first quarter is always the worst due to weather,” Ferreira said on a conference call with analysts. “We will meet our targets” for iron-ore exports this year, he said.

The company in January declared force majeure on iron-ore shipments because of severe rains in three Brazilian states, affecting sales. Iron-ore production fell 2.2 percent in the first quarter to 70 million metric tons after operations were impeded in southeastern Brazil, the company said April 17.

March Rebound

Vale’s production and sales rebounded in March and should continue strong in the second quarter after heavy rains curbed output in the first two months of the year, Bruno Piagentini, an equity analyst at Coinvalores Corretora de Valores, said in a telephone interview from Sao Paulo.

“The market realized the drop in sales and the rise in costs in the first quarter was temporary,” Piagentini said. “Vale is returning to the company that we’re familiar with.”

BHP Billiton Ltd. (BHP), the world’s largest mining company, reported a 14 percent gain in production of the steelmaking raw material in the three months ended March 31.

Vale sold iron ore at an average $109.26 a metric ton, 13 percent less than a year earlier. Average sale prices for nickel fell 27 percent, while copper prices decreased 19 percent, the company said.

Strong demand from Chinese steel mills will support iron- ore prices and Vale is “optimistic” about increases, Murilo said.

Falling Prices

Iron-ore prices slumped to $116.90 per metric ton in October, the lowest since December 2009, from $191.90 in the first quarter of 2011. The company is the world’s biggest iron- ore producer and the second-biggest for nickel after Moscow- based OAO GMK Norilsk Nickel. (MNOD)

“Given the unfavorable weather conditions at the beginning of the year that created transportation difficulties for the product, the result is in line with our expectations,” Victor Penna, an equity analyst at Banco do Brasil SA, said in a note to clients yesterday.

The cost of goods sold by Vale rose 2 percent to $5.69 billion as the company hired more workers and faced dredging and maintenance charges because of the rains on its open pit mines. Sales, general and administrative expenses grew 26 percent to $529 million, Vale said in yesterday’s statement.

Annual Profit

For the year, Vale’s profit is expected to decline to $18.2 billion from $22.9 billion in 2011, according to the average of 16 estimates compiled by Bloomberg.

Vale shipped 65.2 million tons of iron ore and pellets in the quarter, 4.2 percent less than a year earlier. Pellets are a processed form of iron ore used by the steel industry.

“The demand for our products continues to be strong,” Vale said in the statement, adding that iron ore and pellet shipments in March surged to 31.7 million tons. “There are indications of a good performance for Chinese steel production in April driven by the recovery in the demand for construction and infrastructure,” it said.

Nickel sale volumes declined 3.4 percent to 56,000 tons in the quarter, while copper shipments rose 9.4 percent to 58,000 tons, the company said. Potash sales volumes fell 4.5 percent to 128,000 tons, Vale said.

China Sales

Vale sold 47 percent of its iron ore and pellets to Chinese customers in the first quarter, up from 41 percent a year earlier. Europe bought 16 percent, down from 20 percent a year earlier.

“The impact of the recession in Europe persisted, causing the share of our shipments to the region to continue to trend downward,” Vale said.

To contact the reporter on this story: Juan Pablo Spinetto in Rio de Janeiro at jspinetto@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net

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