What Could Drive Vale Stock in 2018



Vale’s price performance

Vale (VALE) outperformed peers in 1Q17, and then its performance started to deteriorate. On a YTD (year-to-date) basis, its stock has still outperformed BHP (BHP), Rio Tinto (RIO), and Cleveland-Cliffs (CLF).

Although Vale’s stock has risen 32.6%, BHP, Rio Tinto, and Cleveland-Cliffs have risen 18.3%, 28.3%, and -27.7%, respectively.

Vale’s 3Q17 results

Vale released its 3Q17 results on October 26, 2017, and held its earnings conference call the next day to discuss the results. The company beat market expectations, and its EPS (earnings per share) came in at $0.40, compared with the analysts’ estimate of $0.32.

Vale’s net income rose ~300.0% in 3Q17 YoY (year-over-year). Its revenues of ~$9.1 billion also surpassed consensus expectations by $230.0 million. Higher commodity prices (COMT), lower costs, and higher volumes led to this beat.

Vale has also been benefiting from the expansion of premiums in high-quality ore. China’s drive to cut pollution has led mills to demand higher grade material, which is usually imported from Australia and Brazil. Its Carajas iron ore contains 65% iron ore content.

The benchmark prices typically quote the price for 62% grade ore. Vale achieved record iron ore production, coal, and copper.

In this series

In this series, we’ll see how Vale is planning to deal with the current volatile commodity price environment. We’ll also discuss the performance of its different segments in 3Q17, analyze the outlook, and discuss the steps the company is taking to reduce its debt—still one of the biggest investor concerns regarding the stock.

We’ll continue in the next part (below) with a look at Vale’s Iron Ore division.

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