Vale stock: New figures under scrutiny

Last Updated: 1. Februar 2024By

It’s an exciting time for you as an investor, especially when it comes to the commodity sector. Recently, some major mining companies have provided a first glimpse into the fourth quarter and full year 2023, specifically regarding production and sales figures. Among them is the Brazilian giant Vale.

The new figures give reason for hope, although there are still some bitter disappointments. Let’s start with iron ore. Similar to Rio Tinto and BHP, this raw material is by far the most important asset for Vale and therefore crucial for its business development.

Vale 2023: Iron ore – more production, less sales, higher prices According to the company, Vale’s iron ore production increased by +4.3% in 2023 to 321.15 million tons. This puts the Brazilians above their own forecast, which had projected around 315 million tons. The output increased significantly in the fourth quarter, by +10.6% compared to the same period last year, reaching 89.4 million tons. The management reported a higher performance from its mining complexes Itabira and Vargem Grande in Brazil.

However, despite the higher production, sales declined last year. In total, Vale delivered 256.79 million tons of iron ore fines (small pieces of iron ore), -1.5% less than in 2022. The discrepancy between production and sales is attributed by management to a rebalancing of inventories. As part of the sales strategy, the company has built up more reserves than in the previous two years, according to a company spokesman quoted by Reuters. However, in the fourth quarter, sales increased significantly compared to Q3, by +11.7%.

Important: In the fourth quarter, profitability also increased – at least there are strong indications for this. According to reports, Vale achieved an average price of $118.3 per ton for iron ore fines in Q4. For comparison: In Q3, it was only $105.1 and in the same period of the previous year, it was only $95.6.

Iron ore price: Keep an eye on China (and India) In fact, after the sharp declines in 2021 and 2022, market prices have recovered somewhat since the summer of 2023. In recent days, positive signals from China have also supported the iron ore price. The Communist Party is pushing for various stimuli to revive the struggling economy, the ailing real estate sector, and the stock market. China is by far the largest consumer of iron ore. The economy of the People’s Republic is therefore crucial for price formation.

Some experts believe that iron ore still has further potential for growth in 2024 – if Beijing’s stabilization efforts take effect. However, we must not underestimate India. The mega-state has recently achieved considerable growth rates, which are gradually increasing its importance for the commodity sector. India is thus increasingly able to compensate for economic weaknesses in Western countries such as Germany.

Copper production at Vale saw similar growth opportunities. But in this metal, there is an additional demand bonus in the long term, as it plays an even more essential role in technologies for the energy transition, such as wind turbines or electric cars. In any case, Vale has positive news regarding copper. According to reports, copper production in 2023 increased by +29% compared to the previous year, reaching 326,000 tons. Thus, Vale was able to increase its output of this important commodity by a higher percentage than its competitors Rio Tinto and BHP, although its production in absolute numbers was still significantly lower than that of its competitors in 2023.

The Brazilians reported progress in the ramp-up of an expansion project (Salobo III) within the Salobo copper complex in northern Brazil. Salobo is considered the largest copper deposit ever discovered in the South American country and accounts for approximately half of the company’s total copper output. The third expansion phase of Salobo is expected to reach full capacity by the end of 2024.

Nickel remains a problem child However, the problem child of the commodity giant is still nickel. Unlike iron ore and copper, this steel and battery raw material did not experience any significant counter movement in 2023 and is currently trading at the same level as in autumn 2020. Especially the sluggish development of electromobility in many economies, combined with oversupply, is weighing on the market price of the battery metal.

And Vale is also feeling the effects of this. In the fourth quarter of 2023, the company achieved an average price of $18,420 per ton for nickel (-24.7% compared to Q4 2022). Since the price fell again during the last quarter of last year and has remained under pressure so far in 2024, profits are likely to continue to decline. Of course, this also affects its competitors.

My conclusion for you Overall, I believe that Vale’s production and sales figures should be viewed positively. There is a turning point for iron ore and copper in 2024. In particular, copper could finally realize its potential as a metal for the energy transition. As a result, there are opportunities for an upswing in Vale’s stock after the relatively weak year 2023 – despite the weakness in the nickel market.

The key date to watch is mid-February, when Vale will present its full report on the fourth quarter and full year 2023. The focus will be on financial results, profit margins, and the outlook for 2024 and beyond. So make sure to stay tuned.