Vale Surges Most Since 2008 on Signs Iron-Ore Glut Will Ease

Updated on

Vale SA, the world’s largest iron-ore producer, gained the most in more than six years on speculation that miners will start easing a production glut that sent prices to 10-year lows.

Shares of Vale surged 9.8 percent, the most since December 2008, at the close in Sao Paulo on Wednesday. The stock was the best performer among 47 metals, mining and steel companies in the Bloomberg Industries aggregate index for the day.

Iron-ore prices rallied after BHP Billiton Ltd. said it’s curbing the pace of expansions after a tactic of taking market share from smaller, higher-cost producers drew the ire of some investors and political leaders. Rio de Janeiro-based Vale posted slower-than-expected output growth for the first quarter on Wednesday, and Bradesco BBI SA expects the company to ease its production pace.

“Vale is already adjusting iron-ore output to a more challenging market, and we see the first signs of this strategy,” Bradesco analysts led by Alan Glezer said in a research note, adding that the producer shut its Jangada plant “likely due to cost inefficiency.”

Vale’s iron-ore output excluding its share in the Samarco Mineracao SA venture and third-party purchases rose to 74.5 million metric tons in the first quarter, from 71.1 million tons a year ago, the company said. That missed the 78.7 million-ton average of seven analysts’ estimates compiled by Bloomberg. Nickel output also trailed forecasts, while copper output beat expectations.

Expansions at Vale and its two main competitors, BHP and Rio Tinto Group, are flooding the seaborne iron-ore market with a global surplus set to rise to 108 million tons next year, from 74 million tons in 2015, according to HSBC Holdings Plc.

‘Modestly Negative’

“The company missed forecasts in both of its main divisions, iron ore and nickel, albeit partially offset by a strong copper result,” BMO Capital Markets analysts led by David Gagliano said in a note to clients. “The net impact is likely to be modestly negative to 1Q15 earnings.”

Ore with 62 percent content delivered to Qingdao, China, rose 5.9 percent to $54.04 a ton on Wednesday, the most since October 2012, according to data from Metal Bulletin Ltd. The price fell to $47.08 on April 2, the lowest since 2005.

Vale, also the world’s largest nickel producer, said output of the base metal increased 2.5 percent in the quarter to 69,200 tons, less than the 73,900-ton average forecast by seven analysts surveyed by Bloomberg.

Copper production advanced 21 percent to 107,200 tons, beating a 105,200-ton average estimate. Coal production fell 5.1 percent to 1.7 million tons, while output of potash declined 1.2 percent to 108,000 tons.

Shuttered Plants

Vale shut its ferroalloys plants in Brazil’s Minas Gerais state because of higher energy prices, curtailing manganese ore operations at the Morro da Mina venture, the company said in the first-quarter production report. The interruption of the Jangada plant will be compensated by production in other mines without affecting the company’s iron-ore output target for 2015, Vale said.

In December, Vale started operations at its N4WS mine in the Carajas iron-ore complex, from where it expects output to increase.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE