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How Higher Base Metals Prices Supported Vale’s Earnings

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Base metals production higher

Vale’s (VALE) base metals (DBB) production, including nickel and copper, rose in 3Q17, with copper production jumping 16.0% and nickel production climbing 10.2% sequentially.

Salobo’s quarterly production record and higher production at Sudbury helped Vale achieve higher volumes for copper. Investors might recall that Sudbury was under scheduled maintenance in 2Q17.

Vale’s nickel production was supported by the return to operations of the Sudbury Furnace 2, strong production in Thompson, and a steady performance at Onca Puma.

Base metal EBITDA fell

The adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) for Vale’s Base Metals division came in at $561 million—a 45% sequential rise. Higher copper and nickel realized prices, lower costs, and higher volumes were the main reasons for higher EBITDA.

Vale’s base metal commentary

Vale noted that nickel prices rose 14% quarter-over-quarter in 3Q17 to nearly $11,000 per ton, and so 3Q17 represented the strongest quarter for nickel prices in 2017. Strong demand in stainless steel production and positive fundamentals, especially in China, supported the price nickel’s rise.

The average copper prices also rose 12% in 3Q17 to $6,349 per ton. The latest quarter represented the strongest pricing quarter for copper since 4Q14. Global copper demand showed improvement, particularly in China and in Northeast Asia.

The continuation of current price trends in quarters to come would likely be positive for the stock prices of base metal producers like Teck Resources (TCK), Southern Copper (SCCO), and Freeport-McMoRan (FCX).

In the next part, we’ll take a look at Vale’s balance sheet.

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