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Vale (VALE) Trims Iron Ore Production Guidance for 2021

·4-min read

Vale S.A. VALE recently trimmed its guidance range for iron ore production to 315-320 million tons (Mt) from the prior expectation of 315-335 Mt. The company had produced 300.4 Mt of iron ore in 2020. For 2022, the company anticipates iron ore production between 320 Mt and 335 Mt.

Iron ore pellets production will be 34-38 Mt in 2022 and is expected to be above 50 Mt thereafter. Vale maintains its guidance for nickel and copper production for 2021. It expects to produce nickel in the range of 165 kt to 170 kt this year. For the next two years, nickel production is expected between 175kt to 190 kt. From 2024 onwards, the company expects to produce nickel above 200 kt. For 2021, copper production is anticipated in the band of 295 kt to 300 kt. Over 2023-2026, copper production is expected at 390-420 kt, and expected to trend above 450 kt thereafter.

Vale at its investors meeting announced that it expects to end this year with production capacity of 341 Mt and attain 370 Mt by the end of next year. The company stated that it will conform to its “value over volume” approach that will continue to define its production and sales strategy. In the medium term, the company has set a target to achieve annual production capacity of 400 Mt. If this is achieved, Vale will reclaim the title of the top iron ore producer from Rio Tinto Plc RIO. Vale had slipped from this position following the Brumadinho dam disaster in January 2019. Due to the incident, VALE’s iron ore production plunged to 302 Mt in 2019 from 385 million tons in 2018. The COVID-19 pandemic added to woes, with production being suspended for some time, recording an overall 300.4 Mt for 2020.

Last month, Rio Tinto announced that it now expects to ship iron ore between 320 Mt and 325 Mt in 2021, down from the previous range of 325 Mt to 340 Mt due to a tighter labor market in Western Australia that led to delay in the completion of a new greenfield mine at Gudai-Darri and the Robe Valley brownfield mine replacement project. The company expects iron ore capacity at 345-360 Mtpy (million tons per year) in the medium term.

BHP Group BHP anticipates iron ore production guidance between 249 Mt and 259 Mt for fiscal 2022, compared with 253.5 Mt produced in fiscal 2021. The mid-point of the range indicates in-line production from the prior-year levels.

Fortescue Metals Group FSUGY expects iron ore shipments of 180-185 Mt in fiscal 2022. The company had reported record shipments of 182.2 Mt in fiscal 2021.

Price Performance

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Shares of Vale have fallen 25.8% so far this year compared with the industry’s decline of 26.2%. This is primarily due to the plunge in iron ore prices due to the intensified curbs on steel production in China that impacted demand for iron ore. Share price of other iron ore miners like Fortescue Metals, Rio and BHP have slumped 29.8%, 16.4% and 14.4%, year to date, respectively.

However, iron ore prices have recently picked up on prospects of improving demand in China. China’s steel mills are expected to increase production as some companies completed crude steel output reduction targets. China’s property sector is showing signs of improvement. The lowered production targets from the iron ore miners could lead to supply concerns and lend some support to iron ore prices.

Vale, Rio and Fortescue currently carry a Zacks Rank #5 (Strong Sell), while BHP has a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Vale’s fiscal 2021 earnings has gone down 14% over the past 30 days. It is currently pegged at $3.94, suggesting growth of 86.7% year over year.

The Zacks Consensus Estimate for Rio Tinto’s fiscal 2021 earnings is currently pegged at $13.07, indicating an improvement of 69.7% year over year. The estimate has gone down 3% over the past 60 days.

The Zacks Consensus Estimate for Fortescue’s ongoing fiscal earnings has gone down 25% over the past 60 days to $2.97. It suggests a decline of 55.5% year over year.

The Zacks Consensus Estimate for BHP’s ongoing fiscal earnings has been revised downward by 6% over the past 60 days to $7.05. It suggests a 4.6% growth year over year.

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