Seeking Alpha

Vale gains on China PMI, but Credit Suisse cuts iron ore outlook

  • Vale (VALE +2.2%) is higher after China reported better than expected June flash manufacturing PMI data, but while iron ore prices may incrementally firm up from Chinese demand, Credit Suisse cuts its iron ore price outlook as it does not foresee any real strength ahead without the kind of broad based stimulus package the current Chinese administration has disavowed.
  • The firm now forecasts iron ore to average only $90/ton in H2 of this year, and expects prices to average $89/ton next year and $87/ton in 2016.
  • Plus, the big three Australian miners - Rio Tinto (RIO), BHP and Fortescue Metals (FSUMF) - are racing to expand production this year before Vale begins to contribute more meaningfully in 2015, meaning plenty of overseas supply should be expected.
Comments (12)
  • Patent News
    , contributor
    Comments (1392) | Send Message
     
    if the outlook is CUT and it comes true Vale will be dead in the water AGAIN!
    23 Jun 2014, 02:44 PM Reply Like
  • unclemike7849
    , contributor
    Comments (237) | Send Message
     
    Vale has been dead in the water for at least 2 years now. I don't see it going much, if any lower, so we may as well hang on to the stock while we collect the anticipated 5% dividend.
    23 Jun 2014, 03:46 PM Reply Like
  • Tda
    , contributor
    Comments (103) | Send Message
     
    Vale is about far more than iron ore. Vale is also the second largest producer of nickel, which is used in everything from coins to cars, plumbing to rechargeable batteries.

     

    Vale also produces fertilizer. It is the largest producer of phosphate and nitrogen agricultural nutrients in Brazil. Fertilizer demand in Brazil will grow twice as fast as overall global demand from now until 2025.

     

    How about copper? Does anyone use copper? Absolutely! Copper is the third most used metal in the world, after iron and aluminum. Vale mines copper in Brazil, Canada, and Zambia. Their operations in Brazil, located in Carajás, benefit from their pre-existing logistical infrastructure originally built to transport iron ore.

     

    Vale is a leading producer of manganese, an essential steelmaking input, and also of ferroalloys – combinations of iron and one or more chemical elements, such as manganese itself. Nearly 90% of manganese output is used in the steel industry, but its applications also include the manufacture of fertilizers, animal food, and automobiles.

     

    There's even more to Vale than these industries, such as energy generation and steelmaking, as well as logistics in railroads, ports and terminals, and shipping. Vale is the largest mineral transporters in the world, servicing Asian markets on a par with its main competitors in the region.

     

    Therefore, to say that "Vale's business is iron ore," is like saying "General Electric's business is light bulbs." Vale is a global, multifaceted company that has much to offer its customers as well as its stakeholders. I'm long on Vale.
    23 Jun 2014, 03:07 PM Reply Like
  • unclemike7849
    , contributor
    Comments (237) | Send Message
     
    I completely agree with your response, however since Vale receives a very large percentage of their operating revenues from iron ore (don't have that figure in front of me) they have generally been viewed as an iron ore company, whether it be the general investing public or the analyists.

     

    I remain long myself, although I've taken a beating the last 2 years.
    23 Jun 2014, 03:53 PM Reply Like
  • DeepseaDiver
    , contributor
    Comments (22) | Send Message
     
    Well said TDA. You’ve just validated and articulated every good gut feeling I’ve had about VALE. I’ve built a large position in VALE over the past several months and am looking for my $0.407 on 7Nov14. One of the most important reference tables I use to identify the next sector rotation, which I believe will be the Materials sector, is Laszlo Birinyi’s article posted on 30Apr13 entitled: “Investing Guru Laszlo Birinyi Debunks One Of The Biggest Myths In The Stock Market Today”. http://read.bi/1jd8cUX
    In the brief article he includes a table labeled “Sector Performance during Up Years”. It’s a great source of historical data by sector that can be viewed in a single glance. I updated his table with year-end values and the final 2013 percentages from left to right are: 43.61, 43.90, 22.43, 59.24, 6.37(Materials), 30.70, 34.93, 20.61, 14.91, 35.22, 29.60 (S&P 500).
    24 Jun 2014, 10:32 AM Reply Like
  • petergrt
    , contributor
    Comments (411) | Send Message
     
    Vale can't seem to catch a break . . .

     

    Vale's iron ore costs are south of $40/ton, delivered. With even lower cost per ton production looming ahead, the profit margins just on iron ore will be formidable and should provide for increased dividends in the future.

     

    The market and the ainalists in particular have grossly undervalued the stock!

     

    I am very long and adding to my position.
    23 Jun 2014, 03:53 PM Reply Like
  • Dan Naumov
    , contributor
    Comments (355) | Send Message
     
    Where are you getting your numbers from? From what I'm seeing, there isn't an iron ore major who has costs below $40/ton including delivery and both Rio Tinto and BHP are usually listed as having lower production and delivery costs than Vale.
    24 Jun 2014, 12:22 PM Reply Like
  • Capt Jack Daniels
    , contributor
    Comments (1427) | Send Message
     
    I'd steer clear of anything in Brazil, the government tinkers too much.
    Just look at PBR.
    23 Jun 2014, 04:47 PM Reply Like
  • pauly1981
    , contributor
    Comments (2) | Send Message
     
    I also believe that Vale can survive the current slump in iron ore prices without a lot of damage. Rio Tinto showed how to cut costs and Vale has a lot of potential doing exactly the same. Vale's other businesses have also great potential and a new government in Brazil should give Vale an additional boost. I'm still accumulating the stock with every price slump.
    24 Jun 2014, 02:39 PM Reply Like
  • Capt Jack Daniels
    , contributor
    Comments (1427) | Send Message
     
    Pauly you must not have been paying attention.
    27 Jun 2014, 06:54 PM Reply Like
  • Tda
    , contributor
    Comments (103) | Send Message
     
    Capt Jack, perhaps I jump in where angels fear to tread, but I also have a position in CIG, a Brazilian power utility and mining company. So far, so good —
    http://yhoo.it/V3aAs3
    30 Jun 2014, 12:56 PM Reply Like
  • Capt Jack Daniels
    , contributor
    Comments (1427) | Send Message
     
    i took a blood bath in PBR when the world thought that oil was eventually going to 200 and that the world was going to dry up and run out of oil.

     

    That fear is well justified if you had your 80 dollar stock dip down to a 15 dollar stock. Those 80% drops in equity value are no jokes and can be quite the killer of portfolio value. Still a 80% drop despite all the huge gains in the over all markets.
    30 Jun 2014, 01:06 PM Reply Like
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