Vale's Still Worth $26 Despite Problems
NEW YORK (Trefis) -- Vale(VALE) , the world's largest iron ore producer, recorded a dip in its first-quarter earnings in line with our expectations. A slowdown in Chinese demand consequently hurting the iron ore prices weighed on the earnings. In addition, heavy rains in Brazil hampered productions and logistics curtailing exports. Rains also contributed to an increase in costs. Vale's competitor Freeport McMoRan(FCX) also reported a decline in profit. We expect another competitor Rio Tinto(RIO) to follow the weak earnings trend.
In the wake of the earnings announcement and recent developments, we have a revised $26 price estimate for Vale, around 15% ahead of the market price. We have released a separate article on our Web site, Vale Worth $26 Despite Iron Ore, Political Pressures, which sheds more light on the company's outlook leading to a revision in price estimate.
See our full analysis for Vale
Iron Ore Prices, Production Weigh Down Earnings
In the first quarter, revenue totaled $11.3 billion, down 16% on a year-over-year basis and 23% on sequential basis. Lower average realized prices for iron ore and pellets, coupled with lower shipments, were major drag on the earnings. Heavy rains, an accident halting the traffic at Carajas railroad and slowdown in Chinese demand hurt the shipments. Revenue from bulk materials -- mainly iron ore, pellets manganese ore, ferro alloys and coal -- was down to 72.7% from the 74.4% in the fourth quarter of 2011.
Average prices for copper and nickel were high on sequential basis, but were offset by a steep decline in volumes. This led to a decline in base metal's revenue share to 15.7% from 16.0% in the previous quarter. Nickel prices were significantly down on a year-over-year basis.