Vale Posts Record Iron-Ore Output as Miners Expand Into Glut

  • The world's biggest producer beat analysts' estimates
  • Nickel, copper production fell on Canada plants maintenance

Vale SA reported record iron-ore output, beating analyst estimates, as the world’s biggest producers of the steel-making ingredient continue defying a collapse in prices by expanding.

Iron-ore production rose 2.9 percent to 88.2 million metric tons in the third quarter, compared with 85.7 million tons a year ago, the Rio de Janeiro-based company said in a statement Monday. The result, which excludes third-party purchases and operations at a venture with BHP Billiton Ltd. in Brazil, topped the 87.9 million-ton average of eight analyst estimates compiled by Bloomberg. Nickel and copper production missed forecasts.

The top three iron-ore producers -- Vale, Rio Tinto Group and BHP -- have pushed for capacity expansions that reduce production costs and squeeze smaller competitors. The resulting supply increase coincided with faltering demand, creating a glut that pushed down prices more than 70 percent from a 2011 peak. The Brazilian company is reducing output from lower quality facilities and replacing it with more productive projects.

"Less efficient operations, including beneficiation plants in the Feijao, Jangada, Pico, Fabrica and Brucutu operations, totaling annual capacity of 13 million tons, were shut down in 3Q15," Vale said in the statement. “Productivity gains in other operations partially offset the production stoppage."

Shares fell 3.6 percent to 14.65 reais at the close in Sao Paulo on Monday, extending a decline this year to 24 percent.

“Vale presented decent production figures for its all-important iron ore business, with base metals coming out a touch below our expectations," Banco BTG Pactual SA analysts Leonardo Correa and Caio Ribeiro said in a research note. “Life after China may prove more painful, and we fear the bottom is yet to come.”

In the first nine months of 2015, output of iron ore including purchases to third parties advanced 4.9 percent to 257.5 million tons. The company is likely to meet its 340 million-ton production target for the year despite the shutdown of some of its higher cost operations, Bank of America Corp. analysts led by Thiago Lofiego said in a research note Monday.

Vale, also the world’s largest nickel producer, said output for the industrial metal declined 0.7 percent in the three months to Sept. 30 to 71,600 tons, missing a 75,600-ton analyst estimate compiled by Bloomberg, amid shutdowns in Canada plants. Nickel production for the first nine months of 2015 advanced to 208,000 tons, or about 69 percent of the company’s 303,000-ton target for the year. Copper production fell 5.3 percent to 99,300 tons, missing all seven estimates compiled by Bloomberg.

Iron ore delivered to China averaged about $55 a ton in the third quarter, compared with more than $90 a ton a year earlier, according to Metal Bulletin Ltd. data, hurting revenue for producers. Vale, which last month slashed its dividend payment for 2015 to the lowest since 2006 amid diminishing profit, will release its financial results for the quarter on Oct. 22.

“An iron-ore price recovery would likely have to be demand rather than supply driven," UBS Group AG analysts Andreas Bokkenheuser and Marcio Farid said in a research note dated Sunday. “As the demand outlook remains bleak in the absence of material steel consumption growth in China, we expect structural challenges, growing oversupply."

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