Vale Output Misses Estimates in Another Boost to Iron Ore Rally

(Bloomberg) -- The world’s second-largest producer of iron ore just gave another boost to rallying prices of the steelmaking ingredient at a time of strong Chinese demand.

Vale SA churned out less iron ore than expected last quarter after lower productivity at one mine and a ship loader fire, with its recovery from an early-2019 tailings dam disaster proving a little slower than thought.

The ramp-up means Vale has an outsized impact on prices in a tight market, especially after Chinese steel output jumped in March. Since surging last year amid robust demand from Chinese steel mills and pandemic-related supply disruptions, iron ore futures moved around in a trading range of about $145 to $175 a ton, before breaking out to multiyear highs in recent days.

Read More: Vale’s Iron Mining Activity Slowed in 1Q, Satellites Show: BNEF

First-quarter output came in at 68 million metric tons, the Rio de Janeiro-based company reported Monday, compared with the 72 million-ton average analyst estimate. While Vale’s output slipped from fourth-quarter levels on seasonal factors, it was higher than a year ago. This year, Vale is expected to account for 83% of global supply growth, according to BloombergNEF.

The company maintained its full-year guidance of 315 million to 335 million tons, and achieved annual output capacity of 327 million tons in the quarter. Still, iron ore sales lagged output, coming in at 59.3 million tons, to continue a trend from last year as the company restocked supply chains.

The combination of recovering production and high prices has sent earnings back to levels of a decade ago. With management focused on existing assets rather than splashing out on deals as it did in previous booms, Vale is rewarding investors with dividends and a buyback.

Its Sao Paulo-listed shares have more than doubled in the past year, narrowing a valuation discount to peers Rio Tinto Group and BHP Group, whose Australian mines are closer to China. Vale’s New York shares were little changed after the close of trading Monday.

Vale, which is also the biggest producer of mined nickel, produced 4.7% less of the metal than a year ago, excluding New Caledonia operations the company sold. The company’s copper production was 19% down over the same span due to maintenance that was slowed by Covid-19 related restrictions on contractors.

In coal, Vale has concluded a revamp of two processing plants in Mozambique after announcing its intention to exit the coal business.

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