Vale ramps up faster than thought in new blow to iron ore price bulls

The Rio de Janeiro-based company reported third-quarter production of 88.7 million metric tonnes, its best result in almost two years and ahead of the 85.7 million-tonne average estimate among six analysts surveyed by Bloomberg.

Futures of the steelmaking ingredient have slipped almost 8% since hitting a six-year high in mid-September as shipments out of top-producing nations Brazil and Australia increase ahead of a seasonal slowdown in Chinese demand.

Vale is navigating legal and pandemic obstacles in its recovery from the Brumadinho dam collapse that cost 270 lives and its title of world’s top producer. Accelerating second-half output has it on track to hit an annual target of 310 million tonnes, Chief Financial Officer Luciano Siani Pires said earlier this month.

“Vale showing they can operate at these rates of production for a sustained quarter is likely to be negative for consensus iron ore forecasts,” RBC Capital Markets analyst Tyler Broda wrote. “This said, we continue to see potential for deficit iron ore markets in 2021 should Chinese steel growth stay even modestly positive off of 2020.”

Even after the recent pullback, iron ore prices are 27% above where they started the year amid strong Chinese demand. Vale was raised to an investment-grade credit rating by Moody’s early this month and has reinstated dividends after cases of Covid-19 among staff stabilized. Its Sao Paulo shares are up about 16% this year.

To be sure, not all of Vale’s output is hitting the market immediately, with the company expected to replenish inventories along the supply chain, including in Asian distribution centers, said Bradesco analyst Thiago Lofiego. Sales volume was just 65.8 million tonnes in the third quarter.

Vale’s nickel production slumped 21% from April-June, mainly because of maintenance work that was rescheduled from previous quarters. Copper output was up slightly quarter on quarter but down 11% from a year earlier. Coal also improved from the second quarter but was down 40% in the year-ago comparison.

Vale is scheduled to report quarterly earnings after the close of regular trading on Oct. 28, with calls the following morning.