Vale Iron-Ore Output Rises More Than Forecast to Record

Vale SA, the world’s largest iron-ore producer, exceeded analysts’ estimates to post record quarterly output as new projects start, deepening a supply glut that saw the steelmaking ingredient trade at five-year lows.

Iron-ore output excluding production from its share in the Samarco Mineracao SA venture climbed 3.1 percent to 85.7 million metric tons from 83.1 million tons a year ago, the company said in a statement. That beat the 83.3 million-ton average of seven analysts’ estimates compiled by Bloomberg. Vale’s copper and nickel output also exceeded forecasts.

Expansions at the Rio de Janeiro-based company and its two main competitors BHP Billiton Ltd. and Rio Tinto Group are creating a global surplus in the seaborne iron-ore market that UBS AG estimates will reach 26 million tons this year. Prices have plunged 40 percent in 2014 to near five-year lows. Vale is on course to produce as much as 330 million tons this year, above its target, according to Quantitas Asset Management.

“Vale’s logic is to produce as much as possible because they earn money anyway thanks to lower cash costs,” Marcel Kussaba, an equity analyst at Quantitas, which oversees 16.6 billion reais ($6.6 billion) including Vale shares, said by telephone from Porto Alegre, Brazil. “It’s a good result but only confirms the trend we already saw in the second quarter.”

Trailing Growth

Vale gained 1.9 percent to 23.62 reais at the close in Sao Paulo, extending its decline this year to 28 percent. Earlier this week the stock traded at the lowest levels in almost six years.

“The good operational performance was supported by the ramp-ups of Plant 2 in Carajas and of Conceicao Itabiritos in the Southeastern System,” Vale said in today’s statement.

Iron-ore growth trails the 17 percent and 13 percent output increases by BHP and Rio Tinto, respectively, in the three months through September. The Brazilian company expects to complete its giant Serra Sul S11D project by end 2016.

Output beat the previous quarterly record of 85 million tons in the third quarter of 2011. Quarterly shipments were cut by 3.6 million tons after railroad interruptions late last month at Carajas, which helped boosting Vale’s iron-ore inventories by 9.3 million tons. In the year ending September, output reached 317.5 million tons, Vale said.

The reduced shipments from the railroad blockage sets off a “yellow light” on Vale’s quarterly results, Bank of America Corp. analysts Thiago Lofiego and Karel Luketic said in a note today. Earnings before interest, taxes, depreciation and amortization for the third quarter may be about 5 percent lower than a $3.1 billion estimate after diminished sales, they said.

Nickel Surge

Vale, the second-largest nickel producer, said output of the base metal climbed 16 percent in the quarter to 72,100 tons, beating a 68,800-ton average forecast by nine analysts surveyed by Bloomberg. Copper output advanced 11 percent in the period to 104,800 tons compared with a 98,800-ton estimate.

Coal production fell 1.5 percent to 2.34 million tons while production of potash advanced to 140,000 tons.

The company is scheduled to release its third-quarter financial results on Oct. 30.

Ore with 62 percent content delivered to Qingdao, China declined 1.9 percent to $80.29 a ton today, according to data from Metal Bulletin Ltd. The price fell to $77.97 on Sept. 29, the lowest level since September 2009.

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