Why Did VALE Stock Decline Sharply In Recent Weeks?

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VALE
VALE

The shares of VALE (NYSE: VALE) observed a rally as commodity and energy prices surged during the latter half of 2021. VALE is one of the largest producers of iron ore and nickel with operations largely based in Brazil. In 2021, the company’s iron ore and iron pellet production was 315 million tons and 31 million tons, respectively. Per recent filings, the company’s iron ore production in Q1 2022 dropped 22.5% sequentially. The company had guided for relatively flat production levels of 320-335 million tons in 2022. While the WHO is laying out a plan to end the emergency phase of the pandemic to spur macroeconomic growth, renewed fears of harsher restrictions in China are now weighing on benchmark iron prices. As the world economy grapples through the multiple risk factors primarily triggered by the Russia-Ukraine war, Trefis believes that VALE’s top line is expected to benefit from the upward commodity price cycle. We highlight the historical trends in VALE’s revenues across key operating segments in an interactive dashboard analysis.

How did VALE perform in 2021?

In 2021, VALE reported strong 38%(y-o-y) growth in total revenues assisted by overall strength in iron & nickel prices and rising production. Pent-up demand and supply chain hurdles due to the Russia-Ukraine war have supported commodity prices in recent months against the expectations of slow macroeconomic recovery perceived earlier. Per annual filings, iron ore fines, iron ore pellets, nickel, copper, and other minerals account for 71%, 13%, 6%, 5%, and 5% of total revenues, respectively. Geographically, Asia, Europe, North America, South America, and other regions account for 69%, 12%, 4%, 11%, and 4% of total sales, respectively. In 2021, the company generated $26 billion of cash from operations, invested $5 billion in property, plant & equipment, and paid $13.4 billion in dividends.

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Stock Has Underperformed Broader Markets

VALE stock declined from levels of around $13.60 in February 2020 (pre-crisis peak) to levels of around $7 in March 2020 (as the markets bottomed out), implying VALE stock lost 50% from its approximate pre-crisis peak. It observed a strong rally post broader market sell-off and has reached $16 at present. In comparison, the S&P 500 Index first fell 34% as lockdowns were imposed in many countries and since has almost doubled in value.

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 Returns Apr 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 VALE Return -16% 19% 119%
 S&P 500 Return -3% -8% 96%
 Trefis Multi-Strategy Portfolio -7% -14% 239%

[1] Month-to-date and year-to-date as of 4/25/2022
[2] Cumulative total returns since the end of 2016

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