Bloomberg News

Vale 3Q Iron-Ore Output Falls Less Than Forecast to 83.9m

October 17, 2012

Vale SA (VALE3)’s third-quarter iron-ore production fell 4.6 percent, beating analysts’ estimates, as the world’s biggest producer of the steel-making ingredient faces weaker demand in China and Europe, its two main markets.

Output declined to 83.9 million metric tons from a record 87.9 million tons a year ago, the Rio de Janeiro-based company said in a regulatory filing today. That exceeded the 82.8- million ton average of seven analysts’ estimates compiled by Bloomberg News. BHP Billiton Ltd. (BHP)’s quarterly iron-ore output was little changed, while Rio Tinto Group’s gained 6 percent.

Vale this year suspended projects, announced asset sales for about $1.2 billion and cut output of premium pellet products as demand slows in China, the biggest buyer of iron ore, and growth slows in Europe, its second-biggest market. Brazilian iron-ore exports slumped 8.2 percent in the three months through Sept. 30, its biggest quarterly decline compared to the prior year in more than three years.

Vale, the world’s third-largest mining company by market value after Melbourne-based BHP and Rio Tinto (RIO), gained 1.4 percent to 36.33 reais at the close in Sao Paulo today. The stock has dropped 3.9 percent this year, underperforming the Brazilian benchmark Bovespa index, which rose 5.9 percent in the period. Rio Tinto overtook Vale to become the world’s second- most valuable mining company for the first time since 2008, according to today’s closing prices of New York-listed shares.

Environmental Issues

Vale’s production at Carajas, the world’s largest iron-ore mine, fell 11 percent in the third quarter on environmental licensing issues, Vale said. Output of pellets, a processed form of iron ore used by the steel industry, rose 2.1 percent to 14.5 million tons in the quarter.

“Current performance is definitely not consistent with the high quality of our assets and corrective measures are under way,” Vale said about the decline in Carajas production. “Issues with environmental permitting led to the continuation of mining in some older pits, which has entailed lower productivity, lower iron content and higher costs.”

Vale’s nickel production slid 16 percent to 49,000 tons, missing a 62,300-ton average forecast by nine analysts surveyed by Bloomberg News. Copper output dropped 20 percent in the past year to 68,000 tons, Vale said.

Vale said it won’t resume operations at its Onca Puma nickel mine in Brazil this quarter as previously forecast.

Slumping Prices

BHP, the world’s third-largest iron-ore producer after Vale and London-based Rio Tinto, said earlier today that output for the steel-making raw material was little changed at 39.8 million metric tons in the three months ended Sept. 30, in line with the 39.2 million tons median estimate of three analysts’ estimates compiled by Bloomberg. Rio’s quarterly iron-ore production rose 6 percent to 52.6 million tons from last year, more than analyst expectations, the company said yesterday.

Iron ore, which accounts for about 90 percent of Vale’s earnings before items, slumped to $86.70 a ton on Sept. 5, the lowest since October 2009 amid weaker Chinese demand. Iron ore for immediate delivery to the Chinese port of Tianjin, a benchmark for Asia, rose 2.5 percent to $115.40 a ton today, according to a price index compiled by The Steel Index Ltd.

Vale said earlier this month that it will suspend output at three pellet feed plants in Brazil representing 18 percent of the company’s total production of the material as demand declines from steelmakers. The reduced processing of iron ore into pellet feed means production of sinter feed, a rawer form of the material, will expand, Vale said at the time.

Balance Sheet

The company agreed Aug. 31 to sell 10 vessels for $600 million and lease them back from South Korea’s Polaris Shipping Co. to improve “capital allocation and further strengthening” of its balance sheet. The announcement followed the sale of a thermal-coal project in Colombia for $407 million, ferromanganese alloy operations in Europe for $160 million and kaolin mineral business in Brazil for $30.1 million.

Vale Chief Executive Officer Murilo Ferreira is reviewing all of the company’s projects to cut costs and is poised to reduce investments in 2013 to the lowest in three years. Ferreira said Aug. 16 that he will postpone a $3 billion potash project in Canada and may delay other investments to focus on expanding the company’s biggest mine.

Vale is forecasting iron-ore output of about 322 million metric tons this year including 10 million tons purchased from third-party producers, Vagner Loyola, the company’s director of ferrous production planning, said Oct. 15. That would be little changed from the 322.6 million produced in 2011.

“Both production and purchases will be very similar,” Loyola told reporters in Rio.

To contact the reporter on this story: Juan Pablo Spinetto in Rio de Janeiro at jspinetto@bloomberg.net

To contact the editor responsible for this story: James Attwood at jattwood3@bloomberg.net


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