Vale’s Q4 2016 Earnings Preview: Favorable Commodity Pricing Environment To Drive Earnings Improvement

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Vale, the world’s largest iron ore producer, is expected to report its fourth quarter earnings results this week. We expect the company to report a significant improvement in its earnings driven by a favorable commodity pricing environment. Most of the major commodities produced by Vale were characterized by higher prices in Q4 2016 as compared to the corresponding period of 2016 including iron ore, copper, and nickel.

The prices of metallic commodities rose sharply in Q4 due to an improved demand outlook driven by a fiscal stimulus in China and the outcome of the U.S. Presidential elections. The fiscal stimulus in China has translated into a resilience in demand for metallic commodities in spite of slowing economic growth. [1] China is the world’s largest market for iron ore, copper, and nickel. In addition, President Trump’s plans for a $1 trillion overhaul of U.S. infrastructure has raised the demand outlook for metallic commodities from the U.S. [2]

The buoyancy in commodity prices will be complemented by a 4.5% year-over-year increase in Vale’s iron ore output, driven by the commencement of mining from the S11D mine. [3] In addition, the company’s ongoing cost rationalization efforts should further support earnings growth in Q4. The company reported a 7% year-over-year decline in total cash costs and expenses in Q3 and we expect the company’s cost reduction efforts to prop up Q4 results as well. The following tables summarize our expectations from Vale’s Q4 2016 earnings result.

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Vale Q4 2016 Earnings Preview

Have more questions about Vale? See the links below.

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

 

Notes:
  1. China’s stimulus-driven growth bolsters metal prices, Financial Times []
  2. Cashing in on Trump’s $1 trillion ‘rebuilding America’ plan, CNBC []
  3. Vale’s Q4 2016 Production Report, Vale Website []