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Investment Overview for Vale (NYSE:VALE)
Below are key drivers of Vale's value that present opportunities for upside or downside to the current Trefis price estimate for Vale:
- Iron Ore Shipments: China currently imports 60% of its iron ore. Should the country decide to increase its domestic iron ore production, shipments from international players like Vale could take a hit. We forecast shipments increasing to over 400 million tons by the end of the Trefis forecast period. However, incase Chinese iron ore production ramps up, this could decline to about 350 million tons which would result in a downside of about 10% to the Trefis price estimate.
- Average Realized Iron Ore Price : Iron ore supplies are growing and demand is falling owing to adverse global economic conditions. Accordingly we are forecasting a significant near-term decline in iron ore prices. However, if production doesn't ramp up to the extent that we expect and prices remain relatively flat throughout the Trefis forecast period, there could be a 7% upside to the Trefis price estimate.
For additional details, select a driver above or select a division from the interactive Trefis split for Vale at the top of the page.
Vale is one of the world's largest mining companies.It primarily operates in Brazil and also has operations in 32 other countries. It is the world leader in iron ore and iron ore pellets production and has access to the world's largest nickel reserves. Apart from iron ore and nickel, it also produces copper, coal and other base metals. Vale also operates a large logistics network in Brazil which includes railroad, maritime terminals and a port. The company also produces fertilizers and has been increasing its focus in the agriculture sector.
The company's Ferrous minerals division is the most valuable division for the following reasons:
Ferrous minerals is the company's primary focus
Ferrous minerals account for approximately 70% of the company's revenues. We expect that proportion to decline over the next few years as the company's focus on products such as fertilizer, results in significant revenue growth in other divisions.
We expect the company to see solid revenue growth in the Ferrous Minerals division as the company has long-term contracts with iron and steel manufacturers worldwide, thereby safeguarding its production and mining activities.
Increasing demand from developing markets
Iron ore is the principal raw material in the production of steel. The global steel industry has grown substantially in the last decade on the back of the rapidly growing infrastructure needs of emerging markets. This growth is expected to continue and will lead to an increase in the demand for iron ore and coal in the years to come. We also expect to see an increase in copper demand as manufacturing facilities are set up in markets like India, Thailand, China and South Korea primarily due to lower labor costs.
Imminent oversupply of iron ore
The ramping up of iron ore production by major iron ore producers worldwide and the expected focus on increasing iron ore self-sufficiency by China(the world’s largest consumer of iron ore) will most likely lead to an iron ore oversupply in the global market. This oversupply, which could come as soon as 2013, would likely lead to a considerable fall in global iron ore prices.
Supply of copper
Global copper supply has been increasing owing to the strong demand trend in the previous years. The deficit is expected to turn into a surplus as early as 2013. Combined with weaker demand owing to depressed economic conditions, prices are expected to decline going forward.
China's impact on global coal prices
China currently accounts for about half of the global consumption of coal, and its demand is likely to increase in the near future. To further exacerbate this situation, the Chinese government intends to limit the amount of coal that is produced in the country to ensure that the reserves are not depleted very quickly. These factors could significantly raise global coal prices over the next few years.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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