VALUATION HIGHLIGHTS

1. Bulk Materials And Other constitutes 91% of the Trefis price estimate for Vale's stock.
2. Base Metals constitute 9% of the Trefis price estimate for Vale's stock.

WHAT HAS CHANGED?

1. VALE's Q4 2023 Results

For Q4 2023, Vale saw its revenue rise 9% year-over-year to $13.05 billion, with earnings coming in at $0.67 per share. The company has been benefiting from stronger iron ore prices as well as better operational performance.

2. Rising rates and macro headwinds

The U.S. Federal Reserve and other major central banks have been hiking interest rates at an aggressive pace to combat inflation. Higher interest rates are widely expected to result in a hard landing for the U.S. economy, leading to lower demand from key steel consumers such as the automotive and construction industry. There are also concerns about demand from China as its real estate market faces a big downturn. This could impact demand and pricing for iron ore.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

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: We expect Vale's iron ore shipments to rise to over 300 million tons by the end of our review period, up from around 269 million tons in 2020. However, the demand for iron ore could slow due to weaker-than-expected growth in global demand, especially from China. If demand does not grow as expected over the forecast period, Vale may be forced to reduce its planned iron ore shipments. If instead of the currently envisaged rates, iron ore fines, and pellet shipments grow at a lower rate and reach 280 million tons instead of the currently estimated 300 million tons by the end of our forecast period, it would represent a downside of around 10% to our price estimate.

• Average Realized Iron Ore Price : We expect iron ore prices to rise steadily over the forecast period. If the recovery is faster than anticipated and Vale's realized price for iron ore fines reaches $130 per ton by the end of our forecast period as opposed to our forecast of $110 per ton as currently factored into our estimates, this would represent an upside of around 10% to our 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.

BUSINESS SUMMARY

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 and other base metals. Vale also operates a large logistics network in Brazil which includes a railroad, maritime terminals, and a port.

SOURCES OF VALUE

The company's Bulk Materials and Other division is the most valuable division for the following reasons:

Ferrous minerals are the company's primary focus

Ferrous minerals, which include iron ore and iron ore pellets, it the largest source of revenue for Vale, accounting for approximately 75% of the company's revenues. We expect the segment to maintain its revenue share at over 80% going forward.

Long-term contracts

We expect the company to see solid revenue growth for ferrous minerals as the company has long-term contracts with iron and steel manufacturers worldwide, thereby safeguarding its production and mining activities.

KEY TRENDS

Rising demand for copper

The long-term demand outlook for copper looks favorable, given the adoption of renewable energy and electric vehicles, which both are very copper-intensive. For perspective, EVs use over 2x the copper used by traditional internal combustion engine vehicles. Renewable generation such as solar and wind requires over 5x more copper for each installed MW compared to traditional nuclear and fossil fuel-based power generation. This could help drive demand for Vale's copper business.