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Vale Tumbles to Six-Month Low as Goldman Cuts Ore Forecast

Vale SA CEO Murilo Ferreira
Vale SA Chief Executive Officer Murilo Ferreira said March 18 he expects iron-ore prices to average $110 to $145 a metric ton this year. Photographer: Jerome Favre/Bloomberg

Vale SA, the world’s biggest iron-ore producer, fell to a six-month low as Goldman Sachs Group Inc. lowered its estimate for the value of the material and cut the price target on the company’s American depositary receipts.

Vale slumped 3.9 percent to 32.39 reais at the close of trading in Sao Paulo, the lowest since Sept. 4. The stock contributed the most to the benchmark Bovespa index’s 1.1 percent drop today. Vale’s ADRs sank 2.6 percent to $16.98 in New York.

Prices for iron ore, the main ingredient used to make steel, will probably average $139 a metric ton this year, down from a previous estimate of $144, Goldman Sachs analysts wrote in a research report today. Analysts from Morgan Stanley and Deutsche Bank AG also have forecast lower prices this year.

“The two key drivers of this more subdued outlook are the growing role of scrap in Chinese steel production, and ongoing investment in Chinese domestic iron-ore production,” the Goldman Sachs analysts wrote.

China, the world’s largest iron-ore buyer, accounts for 34 percent of Rio de Janeiro-based Vale’s revenue, according to data compiled by Bloomberg.

Goldman analysts Marcelo Aguiar and Diogo Miura cut the target price for Vale’s ADRs to $26 from $29.30, according to a separate research note today.

Vale’s Chief Executive Officer Murilo Ferreira said March 18 he expects iron-ore prices to average $110 to $145 a metric ton this year. Prices “may suffer a bit” in the second half because of supply increases, Jose Carlos Martins, Vale’s head of ferrous minerals and strategy, said on a Feb. 28 conference call.

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