Vale Production Miss Loosens Its Grip on Iron King Mantleby
Brazil miner estimated to report record 88.3m tons production
Company reported record nickel and copper production
Vale SA’s decades-long grip on the world iron-ore crown is loosening thanks in part to disruptions from a tailings dam collapse in Brazil.
Output from the Rio de Janeiro-based company’s mines missed analysts’ estimates in the fourth quarter and registered slower growth than the hitherto No. 2 producer Rio Tinto Group. While comparisons are difficult given companies book output from non-wholly owned mines differently, by at least one measure Rio Tinto is now king.
The London-based company with mines in Western Australia’s Pilbara had an annualized rate of 346 million metric tons in the quarter, just above Vale’s rate, according to data compiled by Deutsche Bank AG. That’s as the Brazilian miner’s output was curtailed by seasonal factors and an outage at its Samarco joint venture with BHP Billiton Ltd.
“This is the first time that Vale has been beaten to the top spot,” Deutsche analysts including Grant Sporre wrote in a note to clients Thursday.
The shift probably won’t last long as Vale prepares to start producing at its giant S11D project in Carajas, they wrote, also noting that Rio Tinto includes minority partners in its numbers.
The two companies, along with BHP, have opted to plow on with expansions to displace less efficient, smaller producers. That’s colliding with flagging demand in China to produce a glut that Morgan Stanley sees enduring to at least 2020. While a surge in Australian output is slowing, Rio Tinto’s quarterly production still expanded 10 percent from a year ago, while BHP’s rose 1 percent.
Benchmark iron ore prices have been trading below $60 a ton since mid last year and are down more than 70 percent from a 2011 peak. It rose 1.7 percent to $47.14 on Thursday.
“Overall we are seeing excess supply for at least a few years,” Tim O’Brien at DBRS Ltd. said by telephone from Toronto. “Who knows how long that’s actually going to last, but certainly it’s not a favorable dynamic now. On the demand side, 2016 will probably be a little bit better but the upside is pretty low.”
Output from the Rio de Janeiro-based Vale’s mines fell to 85.4 million tons in the fourth quarter from 88.2 million in the third, it reported Thursday. While production was up from 83 million a year earlier, it missed the 88.3 million-ton average of seven analyst estimates compiled by Bloomberg.
Including third-party purchases and its share of the Samarco venture with BHP, production reached 88.4 million tons. That was curtailed by Samarco’s suspension after a Nov. 5 dam rupture that the government describes as Brazil’s worst ever environmental disaster. Samarco’s pellet feed production slumped 60 percent.
Vale’s shares fell 2.8 percent at 2:24 p.m. in Sao Paulo. The stock, which rallied 16 percent in the previous four days as part of a global mining rebound, has lost 57 percent in the past year.
In December, Vale cut its 2016 iron-ore output forecast to 340 million to 350 million tons from a 376 million-ton guidance given a year earlier. Rio sees output rising 7 percent to 350 million tons in 2016.
Vale is also the biggest producer of pellets, a processed form of iron ore. It’s also the top nickel producer and a sizable copper miner. Total quarterly production of nickel reached a record 82,700 tons. Copper output rose to 112,500 tons, also a record.
Vale is set to release financial results on Feb. 25.