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Vale’s Production Loss Has Become Its Peers’ Gain—Here’s How


May. 9 2019, Published 12:21 p.m. ET

Vale’s first-quarter production

Vale (VALE) published its first-quarter production report on May 8. With the release of the report, the company’s shipment data have become much clearer.

On January 25, one of Vale’s dams in Brazil (EWZ) ruptured, and close to 300 people died. There have been several injunctions since then, and Vale has announced that it will decommission all of the dams it’s built via the upstream method. These developments will cause Vale to lose a major part of its production. A glimpse at these losses was visible in Vale’s first-quarter production report.

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Production materially hit

Vale’s iron ore production has taken a material hit. In the first quarter of 2019, its iron ore volumes came in at 72.9 million tons, a fall of 11% YoY (year-over-year) and down 28% sequentially. Its pellet production also took a hit of 5% YoY, coming in at 12.2 million tons.

Along with its iron ore production, Vale’s nickel production also fell 6.5% YoY mainly due to scheduled maintenance at some of its mines.

Coal production for Vale totaled 2.2 million tons, a fall of 9% compared to the first quarter of 2018 due to severe rains throughout the quarter.

Vale is scheduled to announce its first-quarter earnings results after the market closes on May 9. During its results, the company could update the markets on its production and sales outlooks for the year.

Vale’s loss is its peers’ gain

Vale’s production results show that the supply tightness in the iron ore market is likely to be sustained, which is good news for Vale’s peers (XME), including BHP Billiton (BHP), Rio Tinto (RIO), and Cleveland Cliffs (CLF). Iron ore prices have remained supported following Vale’s dam collapse. Since January 25, while Vale stock has fallen 16.4%, BHP, RIO, and CLF have seen upsides of 11.1%, 20.6%, and 12.9%, respectively.


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