Brazil’s Vale (NYSE:VALE) on Thursday reported a smaller than expected second-quarter profit amid falling iron-ore prices.
The world’s biggest producer of the steel ingredient posted Q2 net income of $1.4 billion, down from $2.5 billion the previous quarter but up from $424 million a year earlier, the company said in a statement.
Vale and other major iron-ore suppliers, including BHP Billiton (NYSE: BHP), Rio Tinto (NYSE:RIO) and Fortescue Metals (ASX:FMG), have driven prices down to their lowest levels in nearly three years by increasing production to displace weaker competitors.
The Rio de Janeiro-based company implied that the strategy is working and said production of the ore remained robust in the second quarter.
“The increase in supply from the majors has pressured prices downward and has led to the closure of high-cost iron-ore miners and the reduction of exports from non-traditional suppliers such as Indonesia, Mexico and Vietnam,” Vale said.
Write-downs
A $500 million impairment charge related to its Simandou project in Guinea and a $274 million write-off to close its loss-making Integra coal mine in Australia also reduced Vale’s earnings for the quarter.
In April, Guinea’s government revoked the firm’s license to mine in the country’s Simandou mountains, which hold some of the world’s richest iron-ore deposits.
In the second quarter, the company produced 79 million tonnes of iron ore, up 13% on the year, with the average sales price at $81.03 per tonne, down 18% on the year and almost half the all-time high of $151.26 set in 2011.
Vale said it expects worldwide apparent steel demand to grow from 3.0% to 3.5% in 2014 and drive demand for iron ore.
