What is Driving Vale’s Recent Price Rally?
Vale (NYSE: VALE) is an iron ore giant and its stock has been benefiting from the recent rise experienced in the price of iron ore. Iron ore prices surged by 6% month-on-month (M-o-M) in January and have been showing consistent strength in the current month as well. The price rise of the commodity is the resultant impact of the re-stocking done by Chinese steel mills ahead of its week-long Lunar New Year holiday which has aided to the demand for the industrial commodity. Additionally, strengthening of iron ore prices has also been supported by an anticipation of firmer steel demand from China (world’s largest iron ore consumer) in the first half of the year. These cumulative factors have, in turn, led to a ~13% rally in the stock price of Vale. We have created an interactive model which exhibits the significant impact iron ore prices have on the stock price of Vale.
Per our analysis, a 1% gain in average realized price for iron ore implies an addition of 10 cents to the market price of Vale, the details of which are outlined in our interactive platform. Our analysis is based on the assumption that the P/E multiple remains constant throughout 2018. You can make a modification to our assumed change in iron ore price figure, earnings margins, and P/E multiple to arrive at your own estimate on the implication of a change in the price of iron ore on Vale’s stock price.
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