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Vale's (VALE) Lackluster Q1 Production Boosts Iron Ore Prices

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Vale S.A.’s (VALE - Free Report) iron ore production for the first quarter of 2021 was 68 million tons (Mt), 14.2% higher than the year-ago quarter. The rise was attributed to the company’s ongoing operational stabilization and resumption plan. However, production was lower than expectations of 72 Mt. This propelled iron ore prices to a decade-high of $180 per ton. Iron ore prices have gained 13.6% year to date as high demand in China is outstripping supply.

Coming back to Vale’s performance in the first quarter, the year-over-year improvement was aided by the gradual resumption of operations in Timbopeba, Fábrica and Vargem Grande complex throughout 2020, the restart of Serra Leste operations, and stronger performance in Serra Norte due to lower rainfall in January. However, scheduled maintenances at the S11D mine and lower performance in the Itabira complex had a dampening impact. On a sequential basis, iron ore production declined 19.5% due to seasonal factors.

Vale’s pellet production was down 9% year over year to 6.3 Mt in the first quarter due to lower pellet feed availability from its sites, particularly Itabira and Brucutu. This was somewhat negated by the resumption of the Vargem Grande pellet plant. Despite a weaker start, Vale expects to gradually increase production through the year, with higher availability of pellet feed from Timbopeba and Vargem Grande. Sales volume of iron ore fines and pellets was up 11% to 65.6 Mt in the quarter under review.

On Mar 31, 2021, Vale concluded the sale of Vale Nouvelle-Calédonie S.A.S. ("VNC") to the Prony Resources New Caledonia Consortium. Production of nickel (excluding VNC) improved 6.8% year over year to 48.4 kt in the March-ended quarter, aided by improved performance of Onça Puma and robust performance of the North Atlantic refineries, with Long Harbour reaching record production levels.

Copper production was 76.5 kt in the quarter under review, down 19% year over year. Cobalt production reached 714 metric tons in the quarter, marking a 40.5% slump from the prior-year quarter. Manganese ore production totaled 91 kt in the January-March period, 74.9% lower than the prior-year quarter, impacted by the rainy season and maintenance works at the Urucum Mine. These were partially offset by the performance improvement at the beneficiation plant in Morro da Mina.

Coal production was 1.1 Mt in the first quarter, down 44.5% from the prior-year quarter. This was mainly due to the production slowdown, following the impacts of the COVID-19 pandemic on the seaborne coal demand and the revamp of the maintenance plan. Gold production was down 31% year over year to 82,000 troy ounces in first-quarter 2021.

Vale’s iron ore production guidance for 2021 remains at 315 to 335 Mt. The company achieved a production capacity of 327 Mtpy in the first quarter of 2021 and is on track to achieve 350 Mt capacity by 2021-end and 400 Mtpy by the end of 2022.

Vale’s production output has been impacted by the Brumadinho tailing dam disaster in January 2019 and the pandemic in 2020. Following the Brumadinho disaster, Vale’s iron ore production declined to 302 Mt in 2019 from 385 Mt in 2018. Vale produced 300.4 Mt of iron ore in 2020, which bore the impacts of the pandemic. Notably, achieving the capacity of 400 Mt will help the beleaguered miner reclaim the title of the world’s biggest producer, which it lost to Rio Tinto plc (RIO - Free Report) .

Vale will likely gain on the rally in iron ore prices this year. Its efforts to improve productivity and cutting costs will likely aid margins. Continuous investment in growth projects, efforts to lower debt, introducing more high-quality ore in the market are also expected to drive growth.

Price Performance

 

 

Shares of Vale have soared 149.5% in a year compared with the industry’s rally of 149.5%.

Zacks Rank & Stocks to Consider

Vale currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials space are Fortescue Metals Group Limited (FSUGY - Free Report) and BHP Group (BHP - Free Report) . Both companies currently flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Fortescue has a projected earnings growth rate of 105% for the current fiscal year. The company’s shares have soared 139% in the past year.

BHP has an expected earnings growth rate of 77.4% for the current fiscal year. The company’s shares have gained around 101% in the past year.

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