Vale CEO Sees Iron Ore Averaging $110 a Ton Over Next Two Years
(Minews) - Vale SA (VALE), the largest iron-ore producer, posted a steeper decline in first-quarter profit than analysts expected as slowing Asian demand dragged down prices for the steel ingredient. Shares slumped.
Net income declined 19 percent to $2.52 billion, or 49 cents a share, from $3.11 billion, or 60 cents, a year earlier, the Rio de Janeiro-based miner said today. Vale was expected to post per-share profit of 53 cents excluding some items, the average of 14 analysts’ estimates compiled by Bloomberg.
Mounting concern that economic growth is slowing in China, Vale’s biggest buyer, is pushing down iron-ore prices and holding the miner’s shares close to a five-year low. The net income decline for the quarter follows a 99 percent profit slump last year as Chief Executive Officer Murilo Ferreira oversees sales and writedowns of unprofitable projects and faces a multi billion-dollar tax dispute in Brazil.
“China’s growth, while still very strong, is lower than in the past and the government is showing more concern with the credit situation,” Henrique Florentino, an equity analyst at UM Investimentos, said by telephone before the release. “In the short term, this scenario can still put downward pressure on Vale’s shares.”
Vale fell 2.8 percent to 25.99 reais at 10:27 a.m. in Sao Paulo. Shares are down 21 percent this year while BHP Billiton (BHP) Ltd., the world’s biggest miner, declined 0.6 percent.
The price of ore with 62 percent iron content delivered to the Chinese port of Tianjin has dropped 21 percent this year to $105.4 a metric ton.
Vale’s average realized iron-ore price fell to $90.52 a ton from $112.97 in the fourth quarter, exceeding the index’s decline in the same period and missing a $101.1 estimate in a Bloomberg survey. The company’s selling price of its main product in the quarter was lower than all 11 estimates.
“The main reason for the sharper drop was the negative effect of the reversal of price provisions recorded at the end of 4Q13,” Vale said in the statement.
Excluding output from the Samarco joint venture, Vale’s iron-ore production rose 9.6 percent from a year ago to 71.1 million tons. That compares with the 71.5 million-ton average estimate.
Pellets output rose 8.6 percent to 9.93 million tons, nickel production increased 3.7 percent to 67,500 tons and copper output fell 1.2 percent to 88,400 tons.
While Chinese economic growth slowed in the first quarter, “demand is expected to absorb the incremental seaborne iron ore supply for the coming years with some partial dislocation of marginal iron-ore producers from the cost curve,” Vale said.
