Vale’s Q4 2016 Earnings Review: Recovery In Commodity Prices Translates Into Improved Results

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Vale reported a sharp year-over-year improvement in both revenue and earnings in the fourth quarter of 2016, as a result of the recovery in commodity prices in the last two months of the year. Vale, the world’s largest iron ore producer, registered sharp increases in realized prices for iron ore, copper, and nickel as illustrated by the tables shown below.

Vale's Q4 2016 Earnings Review

Commodity prices rose sharply in the fourth quarter of 2016, driven by developments in the U.S. and China. President Trump’s plans for a $1 trillion overhaul of U.S. domestic infrastructure helped raise the demand outlook for metallic commodities post his election. [1] This added to the improved demand outlook from China, where the central government’s fiscal stimulus is expected to counter a decline in demand for metals amid slowing economic growth. [2] China is the world’s largest consumer of most metallic commodities and the demand from the country plays a major role in determining the prices of these commodities.

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Going forward, the company reiterated its commitment to debt reduction in its earnings conference call. [3] Vale realized $3.8 billion worth of non-core asset sales in 2016, the proceeds of which helped the company pay off some of its outstanding debt. [3] In addition, the commencement of mining from the low-cost S11D iron ore mine towards the end of 2016, will help the company lower unit costs going forward. Given a significantly improved pricing environment, the ramp up of low-cost mining operations will help the company report improved results in the coming quarters.

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. How Trump should spend $1 trillion on America’s infrastructure, according to architects and urban planners, Business Insider []
  2. China’s stimulus-driven growth bolsters metal prices, Financial Times []
  3. Vale’s Q4 2016 Earnings Call Transcript, Seeking Alpha [] []