Base Metals IPO Unlikely To Generate Value For Vale Under Current Market Conditions

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Vale (NYSE:VALE) is considering an IPO of its base metals business, a move which is unlikely to generate value for the company under the prevailing business environment. [1] The company could sell up to 30% of its base metals business, which is mainly involved in the mining of nickel and copper. [1] However, given the prevailing subdued pricing environments for both copper and nickel, the company is unlikely to realize the best value for its base metals business, should it go ahead with an IPO under current market conditions.

  • London Metal Exchange (LME) nickel prices are currently trading at around $12,600 per ton, around 32% lower year-over-year. [2] Nickel is mainly used in the production of stainless steel, the demand for which is correlated with industrial growth. Weak demand for nickel, particularly due to slowing Chinese economic growth, has resulted in plummeting nickel prices.

          See our forecasts for average realized nickel prices for Vale’s base metals division

  • Copper prices have tumbled over the course of the last year as a result of weak demand, as illustrated by the graph shown below. Copper prices are trading around 18% lower year-over-year. [3] This has primarily been due to weakness in demand, driven by an economic slowdown in China, the world’s largest consumer of copper. Given the subdued copper and nickel pricing environments, an IPO for the base metals division is not a good idea under current market conditions.
    LME Copper Prices, Source: London Metal Exchange

See the links below for more information and analysis:

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Notes:
  1. Vale Looks to Sell Up to 30% of Metals Unit in Possible IPO, Bloomberg [] []
  2. Nickel Price Chart, LME []
  3. Copper Price Chart, LME []