Vale Slumps to 10-Month Low as Iron Ore Prices Dive on China

Vale SA, the world’s largest iron-ore producer, dropped to a 10-month low as prices for the commodity slumped.

The voting shares fell 2.1 percent to 28.86 reais at the close of trading in Sao Paulo, the fourth consecutive day of losses and the lowest level since July 8. The MSCI Brazil/Materials Index sank 2.5 percent.

Benchmark prices for iron-ore delivered to the Chinese port of Tianjin fell 1 percent to $97.50 a dry ton today, the lowest since 2012, according to data from The Steel Index Ltd., on speculation a slowing Chinese property market will crimp demand for the raw material. Vale’s main earnings driver is iron ore, and the stock will continue to be affected by the lower prices of the steelmaking ingredient, according to Grupo BTG Pactual analysts led by Edmo Chagas in Rio de Janeiro.

“The iron-ore markets should keep moving toward a surplus as more capacity comes into the market and the Chinese steel market continues to lose steam,” the analysts wrote in a research note to clients. “Vale should remain under pressure given this more bearish view.”

Preferred shares of Vale, the most traded type of stock in the company, fell 2.3 percent today to 26.03 reais.

The biggest producers including Vale, BHP Billiton Ltd. and Rio Tinto Group have invested billions of dollars to expand output, betting on sustained demand from China as economic expansion in the world’s biggest buyer slowed. China’s new-home prices in April rose in the fewest cities in a year and a half.

Vale’s average realized iron-ore price fell to $90.52 a ton in the first three months of this year from $112.97 in the fourth quarter, 25 percent lower than the average of the index and missing a $101.1 estimate in a Bloomberg survey. The company’s selling price for its main product was lower than all 11 estimates compiled by Bloomberg.

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