Here’s What to Expect from Vale’s Q3 2017 Results

October 25th, 2017 by Trefis Team
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Vale (NYSE: VALE) will release its 3rd quarter earnings results and conduct a conference call with analysts on 26th October, 2017. [1] The company recently released its production report and reported an improvement in production of iron ore by 3.3% compared to Q3 2016. This was mainly driven by the ramp up of production of the company’s S11D mine in the Northern System due to greater operational efficiency achieved. [2]

This improvement in production volume coupled with a recovery in iron ore prices in the past quarter would enable the company to generate high revenues. Iron ore saw a peak in its prices in August ’17 as China cut its output of substandard steel products in order to follow the government’s regulatory requirements while demand remained intact. Chinese steel producers demanded iron ore with Fe content greater than 60% as it produces more steel per ounce of iron ore and emits less coke into the environment. [3] Vale has access to mines which produce high grade iron ore at low cost. The latest  production report states that the average Fe content was 64.1% in 3Q17, higher than that of Q2 2017. ((Vale’s Production in 3Q17, Vale News Release)) The increase results from Vale’s strategy to benefit from the prevailing demand environment in China to improve the company’s iron ore price realization.

Copper production was up by 7% supported by efficient plant production, which would be beneficial for the company as copper is trading at a 3-year high in prices. This is due to the environmental curtailments implemented in China which has, in turn, pushed the country’s demand for refined copper. ((China reviewing copper scrap imports; may call halt in 2018: notice, Reuters)) High copper prices along with high production volume would be favorable for the company’s third quarter revenues.

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Although iron ore prices may plunge in the upcoming months due to the possibility of significant curtailments being implemented by the Chinese government on steel producers ahead of the winter months, Vale being the world’s largest iron ore producer, would be able to profitably sustain the period of subdued prices given that it has access to refined quality of iron ore at low prices.

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 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. Vale will announce on October 26th its financial performance, Vale News Release [↩]
  2. Vale’s Production in 3Q17, Vale News Release [↩]
  3. Iron ore prices get support from Chinese steel market strength, Metal Bulletin [↩]