Vale’s Q3 2016 Earnings Review: Success Of Company’s Cost Reduction Initiatives Bodes Well For The Future

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Vale reported a significant improvement in its Q3 earnings results, with a combination of higher iron ore prices and the success of the company’s cost reduction initiatives driving margin improvement. Though Vale’s realized iron ore prices were higher year-over-year in Q3, the upside for prices of the commodity remains limited in the near term due to a persisting oversupply situation. Rising iron ore production from major iron ore mining companies such as Vale and Rio Tinto in the face of faltering demand from a slowing Chinese economy, which accounts for the  purchase of nearly two-thirds of the world’s seaborne iron ore supply, is likely to limit the growth in iron ore prices. With prices of the commodity unlikely to improve significantly in the near term, cost reduction is vital for margin improvement. As illustrated by the following table, Vale’s cost reduction initiatives have been fairly successful over the past year, which will stand the company in good stead going forward.

Vale Q3 2016 Earnings

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Vale