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What’s the Single Largest Driver for Vale’s Revenues, Earnings?

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The iron ore price rally

Commodity (COMT) producers, especially iron ore producers, have experienced nothing short of a miracle in 2016. Despite the majority of market participants believing to the contrary, iron ore prices have rallied in 2016. As of September 20, 2016, iron ore prices have risen 30% year-to-date (or YTD).

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Vale SA’s stock price

Stronger iron ore prices and management execution have led to an impressive share price rise of 61% YTD through September 20, 2016, for Vale SA (VALE). The company remains committed to improving its balance sheet, reducing its capital expenditure, and maintaining its competitiveness.

Other iron ore producers have also recuperated some of their losses from 2015. Cliffs Natural Resources (CLF) has outperformed with a YTD rise of 252% as of September 20, 2016.

Fortescue Metal (FSUGY) and Vale SA (VALE) have risen 151% and 61%, respectively. Rio Tinto (RIO) and BHP Billiton (BHP) (BBL) have risen 5% and 11%, respectively.

In this series

In this snapshot series, we’ll see how Vale’s management is dealing with this volatile commodity price environment. We’ll also take a look at the company’s various segments and how they’re coping with this volatility. We’ll also examine the company’s efforts to reduce its balance sheet risk. Finally, we’ll try to gauge market sentiment by looking at analyst ratings and changes. We’ll sum up the series by seeing how Vale’s valuation compares to its peers.

The price of iron ore is the single largest driver for Vale’s revenues and earnings. In the next part of this series, we’ll see what Vale’s view is on its outlook.

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