Vale profit more than doubles in Q3

Brazil’s Vale SA reported net income of $3.5 billion – a 114% jump on the same quarter last year. Analysts surveyed by Thomson Reuters had predicted $3.3 billion.

Revenue increased by 11% to $12.9 billion, driven by a 7% rise in iron ore shipments and lower cash costs. Iron ore accounts for more than 90% of the company`s profits.

But Vale is also trimming the fat. In efforts to minimize costs and focus on core operations, the company cut investment spending by more than one billion to $11 billion. The mining giant also reduced its stake in VLI – its logistics subsidiary – by 40%. Asset sales since 2012 now total $3 billion worth.

“The divestiture enables us to extract hidden value not priced into Vale’s shares and reallocate capital to our core businesses.”

Higher iron ore prices this quarter were the result of increased demand from China, where a rise in infrastructure spending boosted steel production.

But the excess demand isn’t expected to last long. As China replenishes its stock piles, surplus capacity in the market will likely drive down prices. In fact, last month Vale warned that by 2018, capacity could outpace demand by 5 to 6%.

Vale, BHP Billiton and Rio Tinto dominate the seaborne market for iron ore and they all plan on increasing production over the next few years – Vale by 31% by 2017, according to Seeking Alpha.