Vale's (VALE) YTD Iron Output Puts It on Track to Meet '20 View

Zacks Equity Research
·4-min read

Vale S.A.’s VALE latest report reveals that it has produced around 215.9 Mt of iron ore in the first nine-month period ended Sep 30, 2020. This marks a year-over-year decline of 3.5%, reflecting lower production in the earlier part of the year on account of unscheduled maintenance, weather-related conditions, impact of the COVID-19 pandemic, to name a few. However, the company has bounced back in the third quarter, as evident from a sequential increase of 31% in iron ore production to 88.7 Mt.

The company attained a production record of 56.9 Mt in the third quarter in the Northern System (which comprises Serra Norte, Serra Leste and S11D mines). Notably, S11D had a record contribution of 24.4 Mt in the quarter under review. In the Southern and Southeastern Systems overall performance improved across operating units, notably in the Itabira Complex and Timbopeba site.

Pellets production was 8.6 Mt in the reported quarter, reflecting a sequential rise of 21% driven by higher availability of pellet feed, especially from the Itabira Complex, and improved operational performance at the pelletizing plants. Sales volumes of iron ore fines and pellets were 74.2 Mt in the quarter, up 21% from the second quarter.

Vale anticipates iron ore fines production in 2020 to come in at the lower end of range of 310 Mt to 330 Mt. Thus, the company has to produce at least 94 Mt of iron ore in the fourth quarter to meet the lower end of its guidance. This calls for an increase of 6% over the third quarter production levels.

Vale has been striving to sustain margins by focusing on product line, improving productivity and cutting costs. Also, continued investment in growth projects, efforts to lower debt levels, ramp up its coal business and transforming base metals business will drive growth. It expects to reach an iron ore capacity of 400 million tons per year by increasing output across its operations.

The company is poised well to gain from high iron ore prices this year. All the big iron miners like Vale, BHP Group BHP, Rio Tinto plc RIO, Fortescue Metals Group Ltd. FSUGY are banking on the demand from China — the world’s top consumer of the steelmaking ingredient. Steel production has gained steam in the country driven by efforts to recover from the coronavirus-induced shutdown.
 
BHP Group recently provided production update for iron ore for first-quarter fiscal 2021 (ended Sep 30, 2020). Iron ore production dipped 1% on a sequential basis to 66 Mt (74 Mt on a 100% basis). BHP Group has maintained its fiscal 2021 iron ore production guidance between 244 and 253 Mt (276 and 286 Mt on a 100% basis). However, the company stated that production in first quarter fiscal 2021is expected to be impacted by work linking its Mining Area C and South Flank projects in Western Australia.

Meanwhile, Rio Tinto reported that Pilbara operations produced 86.4 million tons, of which Rio Tinto’s share was 71.4 million tons, in the third quarter of 2020 This reflects a sequential increase of 4%. The company has maintained iron ore production guidance at 324-334 million tons for 2020.

Fortescue Metals Group is expected to release first quarter fiscal 2021 (ended Sep 30, 2020) production report on Oct 29, 2020. In the fiscal 2020 ended Jun 30, 2020 the company had mined 204.3 wet metric ton (wmt) of iron ore, down 1% year over year. Fortescue delivered record shipments of 178.2 wmt in fiscal 2020, up 6% year over year. It anticipates iron ore shipments of 175-180 wmt in fiscal 2021.

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