Iron ore weakness to continue into 2025 and beyond, says Fitch Solutions’ BMI
Looking beyond 2024-2025, BMI analysts maintained their view that iron ore prices will likely follow a multi-year downtrend.
Vale SA, the world’s No. 2 iron ore producer, churned out more of the steelmaking ingredient than expected last quarter to add further pressure to prices that have been battered by recession fears.
The Brazilian mining giant produced 89.7 million metric tons, topping the 87.2 million-ton average analyst estimate. The result was also well ahead of the previous three months and slightly more than a year ago. Vale also saw sharp gains in nickel and copper output.
In a report Monday, the Rio de Janeiro-based company attributed the iron ore output growth to dry weather in northern Brazil and higher third-party purchases and production in the south. Still, sales came in well below output, which Vale put down to transiting inventories along the supply chain. Vale’s shares gained as much as 3.8% in New York Tuesday as investors welcomed the stronger-than-expected production figures.
Concerns over the cooling impact of higher interest rates, as well as China’s zero-Covid policy and a recent push for pollution curbs, have iron ore futures trading near their lowest this year. So far, China’s peak building season has failed to ignite a recovery.
Vale is a major swing factor on the supply side amid its slow recovery from a 2019 dam collapse. The firm cut annual production guidance in July, saying it was seeking greater flexibility due to market conditions. It needs to produce at least 83 million tons this quarter to reach the lower end of the guidance range of 310-320 million tons.
Seasonal factors mean production is usually stronger in the second half. The Brazilian miner lost the title of top iron ore supplier to Rio Tinto in the wake of a 2019 dam breach. The rival — which flagged tougher market conditions for commodities producers — saw its shipments 1% lower, and put its full-year output estimates at the low end of the 320-335 million tons forecast.
On the base metals front, Vale saw nickel output jump 72% from the third quarter of last year, while copper grew 7,4%. The division was helped by the end of refinery maintenance in Canada and a better processing performance at Salobo in Brazil. To be sure, nickel sales lagged production because of low availability of containers for Brazilian production and shipping congestion at UK ports.
The base metals division, which is recovering from several operational setbacks last year, is under the spotlight as Vale takes advice on options to unlock value amid growing demand from the clean energy transition. That could mean a spin-off that goes public or even a strategic partnership. A final decision is expected by the end of the year.
A possible base-metals turnaround was apparently one of the lures for a new key minority shareholder in Vale: sugarcane billionaire Rubens Ometto. Through conglomerate Cosan SA, Ometto just acquired a 4.9% voting stake, which he plans to raise to 6.5%.
Vale is set to release earnings Oct. 27 after the close of regular trading.
(By Mariana Durao)
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