Could Vale See Revenue Growth Despite Major Dam Disaster In 2019?

by Trefis Team
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Vale (NYSE: VALE), the world’s largest iron ore miner, has been the primary beneficiary of higher iron ore prices, with a cumulative addition of over $9 billion to its revenue base over the last two years, as revenue increased from $27.5 billion in 2016 to $36.6 billion in 2018. However, the Brumadinho dam disaster in January 2019, which led to about 250 deaths, cast a shadow on Vale’s near-term growth prospects, with the company announcing production cuts immediately following the accident. However, Trefis believes that premium iron ore and pellet pricing, could more than offset any volume decrease, with revenue likely to increase by 7.9% in 2019.

You can view the Trefis interactive dashboard – Vale Revenues: How Does Vale Make Money? – to better understand the company’s business and segment-wise revenue performance. In addition, here is more Materials data.

Business Model

What Does Vale Offer?

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

Who Pays?

  • Iron ore and iron ore pellets, along with manganese, are supplied to the global steel industry. China accounts for over 50% of iron ore fines and pellet shipments, with Asia as a whole accounting for close to 70%.
  • Copper concentrates are sold under medium and long-term contracts to copper smelters in South America, Europe, India, and Asia. Vale also has medium-term copper supply agreements with Glencore Canada Corporation.


Though Vale is known to offer the best grade iron ore in the world, the company still faces intense competition from players such as Cleveland-Cliffs, Rio Tinto, BHP Billiton, Codelco, and Freeport-McMoRan.

Iron Ore Revenue

  • After a strong growth in 2018, shipments are expected to decrease in 2019 due to production cuts of about 40 million tons following the Brazil dam accident in January 2019.
  • Vale is likely to fill part of this gap with higher production from other mines and inventory, which could see shipments decreasing by about 10 million tons.
  • However, increase in prices due to global supply deficit is expected to more than offset lower shipments, thus, leading to higher revenues in 2019.
  • Revenue could see a drop in 2020 due to subdued pricing as global production rises with Vale expected to operate at the pre-accident capacity.

Pellet Revenue

  • China’s recent restrictions (only ores with minimum iron content of 62% are to be used in China) to mitigate environmental degradation, and higher demand from emerging markets, has led to premium pricing for Vale’s high-grade ores and pellets.
  • Global price for pellet went up from about $113/ton in the beginning of 2019 to over $120/ton recently.
  • As most of Vale’s output has iron content of 62% to 65%, price realization for its pellet output is expected to increase from $117.50/ton in 2018 to $122/ton in 2019.
  • Revenue is expected to see a modest drop in 2020, led by decrease in pellet pricing on the back of projection of higher supply.

Here’s a look at how Vale’s iron ore and pellet business compares with major competitors.

Nickel Revenue

  • Vale has reduced its nickel production in the last one year due to volatile market prices on the back of US-China trade tension.

To know when could Vale’s nickel division see growth in revenues, please refer to the Trefis analysis – Vale Revenues: How Does Vale Make Money?

Other Revenue (Manganese, Coal, Copper, and Ferroalloys)

  • Other revenue has witnessed volatility due to fluctuation in the prices of copper, coal, manganese, and energy products.
  • We expect strong pricing of copper (led by rising demand from EV manufacturers and industries such as electronics and construction) to drive segment revenue in the near term.

Total Revenue

  • For the full year we expect revenue to increase by about 7.9% to $39.5 billion in 2019, followed by a decline of 1.1% to $39 billion in 2020.
  • Premium pricing of pellet and iron ore, along with higher copper prices are expected to more than offset production cuts in 2019.

As per Vale’s Valuation by Trefis, we have a price estimate of $14 per share for Vale’s stock, which is higher than its current market price.


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