(Bloomberg) — After a bumper third quarter, the world’s No. 2 iron ore miner is cutting back on lower quality supply after prices of the steelmaking ingredient plunged.

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Vale SA produced more than analysts expected and surpassed both the previous quarter and the year-ago period as part of an ongoing recovery from a 2019 tailings dam disaster and thanks to better weather.

But with iron ore futures down from peaks earlier this year and being highly volatile amid Chinese curbs on steel output and concerns over the Asian nation’s property market, the Brazilian miner is looking to defend margins.

“Production and sales strategy is based on market conditions, prioritizing value over volume, with focus on margin maximization,” Vale said Tuesday in its production report.

Vale’s shares dropped as much as 3.4% in Sao Paulo before paring some losses, to trade 2.2% lower at 12:51 p.m. local time.

Analysts foresee weaker iron-ore sales for this year and next as the Rio de Janeiro-based company focuses on reducing lower quality volumes to protect margins. Lower-than-expected shipments in the fourth quarter and 2022 “could provide some support to iron ore prices, while also improving Vale’s price realization due to an improved product mix,” Bradesco BBI analyst Thiago Lofiego said in an Oct. 19 report.

The Brazilian mining giant churned out 89.4 million metric tons in the third quarter to top the average analyst estimate of 87.3 million tons, showing the recovery is on track despite sluggish permitting in its prized deposits in northern Brazil. That may help counter a drop in shipment guidance last week by top producer Rio Tinto Group and a dip in output at BHP Group.

Vale’s sales came in only slightly ahead of the previous periods and lagged production. The company is trimming supply of lower-margin ores to the tune of 4 million tons in the fourth quarter, and possibly another 12-15 million tons next year. While 2021 output guidance was maintained, it’s likely to come in below mid range.

Bloomberg Intelligence’s baseline scenario shows a structurally oversupplied iron ore market by late 2022, with surpluses through 2024. The return of tonnage from Vale, which ships high-quality ore, is expected to account for the majority of supply growth.

Nickel Woes

Vale is also one of the world’s top nickel producers and a major copper supplier. Production of both metals fell following a strike at its Sudbury operations, with annual guidance cut. The company expects to have its Sudbury facilities back to normal this month and resume its Totten mine early next year after mine shaft repairs. Vale is scheduled to release third-quarter earnings on Oct. 28.

(Adds analysts comments and shares from fifth paragraph.)

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