Vale S.A.’s VALE third-quarter 2021 iron ore production was 89.4 million tons (Mt), which came in 1% higher than the year-ago quarter and 18% higher than the second quarter of 2021. The company stated that it will cut back production of low-margin iron-ore in the fourth quarter by about 4 Mt tons due to low prices. If prices do not rebound, the company plans to trim output next year as well.
The sequential improvement in iron ore production in the quarter was aided by improvement of weather-related conditions in the Northern System that boosted Serra Norte and S11D performance. It was also aided by an increase in output in Itabira operations, higher output at Vargem Grande due to dry processing, and a rise in purchases of ore from third parties.
Vale’s pellet production was down 2.6% year over year but up 4.1% sequentially to 8.3 Mt in the quarter. Third-quarter sales volume of iron ore fines and pellets was 75.9 Mt, up 2% year over year and 1% from the second quarter of 2021.
Production of nickel fell 21.8% year over year to 30.2 kt in the September-ended quarter. Compared to the second quarter of 2021, nickel production was down 27.2% due to labor disruption at Sudbury and extended maintenance at Onca Puma during the quarter.
Copper production was 69.2 kt in the quarter, down 21% year over year and 5.7% from the second quarter of 2021. The labor disruption in Sudbury impacted copper production by 16 kt in the quarter, which was offset by an improved performance at Sossego as plant availability increased in the quarter after completion of scheduled maintenance in the second quarter.
Cobalt production reached 452 metric tons in the quarter, down 27.3% from the prior-year quarter and 41.1% from the second quarter of 2021. Manganese ore production totaled 108 kt in the July-September period, 1% lower than the prior-year quarter. Production was down 4.4% sequentially due to the programmed reduction in production at Morro da Mina, in line with its mining plan.
Coal production was 2.5 Mt in the third quarter, a 78% surge from the prior-year quarter and 19% higher than the second quarter. This can primarily be attributed to improved productivity after the major plant revamp concluded earlier this year. The revamp removed important bottlenecks in the processing plants by increasing equipment availability and productivity. Gold production was down 19.8% year over year to 93,000 troy ounces in third-quarter 2021. Compared to the second quarter, gold production declined 3%.
Among other developments, Vale signed an agreement for the sale of its manganese ferroalloy assets in Minas Gerais to the Grupo VDL on Sep 28. The sale, which is subject to approval by the Administrative Council for Economic Defense, will lead to the end of Vale's activities in the production of manganese ferroalloys, thus simplifying its portfolio.
In sync with its “value over volume” approach Vale has decided to lower its supply of high-silica low-margin products by around 4 Mt in the ongoing quarter, due to weak demand and low prices. The company expects production in 2021 to fall within the lower half of its range 315-335 Mt. It added that if this scenario persists, it will reduce the offering of low-margin products in 2022 by around 12-15 Mt.
Vale has reinitiated guidance for nickel and copper production, which had earlier been placed on review citing uncertainties concerning the labor situation in Ontario, and the ramp-up of the safety and maintenance process implementation in Sossego and Salobo. For 2021, it now expects to produce nickel in the range of 165 kt to 170 kt and copper in the band of 295 kt to 300 kt. This factors in the risks associated with the scheduled resumption of operations at Totten mine and Salobo plant, and the stoppage of Onça Puma mine as well as the ramp up of all Sudbury operations.
This comes on the heels of BHP Group’s BHP announcement of production details for the quarter ended Sep 30, 2021. Total iron ore production dipped 4% to 63 Mt due to higher planned maintenance and temporary rail labor shortages related to COVID-19 related border restrictions. The company reported declines in quarterly output for copper, metallurgical coal and nickel, while petroleum and energy coal were up year over year. Last week, Rio Tinto plc RIO, reported a 4% drop in iron ore production to 83.3 Mt in the July-September quarter citing heritage management, brownfield mine replacement tie-ins and project completion delays. The company now expects to ship iron ore between 320 Mt and 325 Mt this year, down from the previous range of 325 Mt to 340 Mt as a tighter labor market in Western Australia led to delay in the completion of a new greenfield mine at Gudai-Darri and the Robe Valley brownfield mine replacement project.
Iron ore prices have been impacted this year due to weak demand in China on account of its intensified curbs on steel production. The lackluster production reports from the iron ore miners could lead to supply concerns and lend some support to iron ore prices.
Price Performance
Shares of Vale have fallen 15.2% so far this year compared with the industry’s decline of 12.7%.
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Zacks Rank & a Stock to Consider
Vale currently carries a Zacks Rank #5 (Strong Sell).
A better-ranked stock in the basic materials space is Teck Resources Ltd TECK, which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Teck Resources has a projected earnings growth rate of 312% for the current fiscal year. The company’s shares have appreciated 60% so far this year.
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