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Vale (VALE +1.9%) is upgraded to Buy from Hold with a $21.50 price target, raised from $17.25, at HSBC, which says prices for the company's main metals - iron ore, copper and nickel - likely will stay "stronger for longer" given ongoing supply issues, higher inflation and U.S. dollar strength.
The Russia-Ukraine conflict likely will keep metal prices elevated, at least in the short term, given the relevance of the two countries to overall global supply, HSBC's Jonathan Brandt believes; for example, Ukraine and Russia account for ~25% of the total pellet market and 7%-10% of the nickel market.
Even as iron ore supply from the region is not critical, "any restrictions on Russia's semi-finished steel exports would likely tighten the global supply/demand balance and potentially lead to higher international steel prices, which in turn would lead to higher iron ore prices," Brandt writes.
The analyst says Vale's fundamentals remain strong, with continued dividends and likely share buybacks equivalent to a double-digit yield.
Vale has said it expects Russia's invasion of Ukraine will increase the premium that steelmakers pay for iron ore pellets beginning in Q2.
