Vale Profit Misses Estimates as Iron-Ore Prices Slump

(Bloomberg) — World No. 2 iron ore producer Vale SA saw a steeper-than-expected drop in profit on slumping prices and lingering cost inflation.

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The Brazilian mining giant reported adjusted earnings before items of $3.7 billion for the third quarter, down 47% from a year ago and well below the $4.6 billion average analyst estimate.

Vale is focusing on higher quality ore in a bid to defend margins from the lowest iron ore prices in two years. Futures have slumped on concerns over the cooling impact of higher interest rates, combined with China’s Covid restrictions and real-state woes.

Vale’s main rivals, Rio Tinto Group and BHP Group have warned that commodity producers will keep struggling with global economic uncertainties and a patchy recovery in China. Baoshan Iron & Steel Co., the world’s largest steelmaker, also delivered a bleak outlook for the industry in China this week, predicting demand in the country could fall 5% this year.

Vale’s realized iron ore price in the quarter was $92.6 a ton, versus $127.2 a year ago. The lower prices offset higher shipments. On a net basis, profit fell 19% from a year ago but came in much stronger than expected.

The Rio de Janeiro-based supplier produced more iron ore than expected last quarter at 89.7 million tons. Still, sales came in well below output.

Vale saw a recovery in nickel and copper output in a sign that it’s leaving behind a string of operational setbacks. The base metals business is under the spotlight as Vale takes advice on options to unlock value, which could mean a spin-off that goes public or even a strategic partnership.

“We have very high ambitions around this business,” CEO Eduardo Bartolomeo said at a conference last week. “We can be the consolidator, we can be the biggest future commodities company. It’s time to think big.”

On a call with analysts Friday, investors will be looking for further outlook on the iron ore market and Chinese steel mill demand and the prospect of a settlement for the Mariana dam disaster and clues on Vale’s final decision on its base metals operations.

Vale shares were little changed after the close of regular trading in New York. Management is scheduled to speak with analysts on an 10am call.