Vale Profit Meets Analysts Estimates as Rain Hurts Sales

Vale SA (VALE), the world’s second-largest mining company, said first-quarter profit fell 44 percent, in line with analysts’ estimates, after iron-ore prices declined and heavy rains curtailed production.

Net income dropped to $3.83 billion, or 74 cents a share, from a record $6.83 billion, or $1.29, a year earlier, Rio de Janeiro-based Vale said today in a regulatory filing. Vale was expected to post per-share profit of 74 cents excluding some items, the average of 12 analysts’ estimates compiled by Bloomberg.

“The abnormal rainfall in Brazil has magnified the seasonal effect on revenues and costs, which combined with the reduction in iron ore and pellet prices led to narrower operating margins and lower than expected earnings and cash flow,” Vale said in the filing, which was released after the close of regular trading.

Vale’s profit margins have declined as China, the biggest steel producer, slows its economic expansion, pushing down prices for metals and minerals. Iron-ore prices slumped to $116.90 per metric ton in October, the lowest since December 2009, from $191.90 in the first quarter of 2011.

Net sales declined 16 percent to $11.1 billion in the period after Vale sold its iron ore at an average $109.26 per metric ton, 13 percent less than a year earlier. Average sale prices for nickel fell 27 percent, while copper prices decreased 19 percent, Vale said.

The company is the world’s biggest iron-ore producer and the second-biggest for nickel after Moscow-based OAO GMK Norilsk Nickel. (MNOD)

Declining Output
Vale’s iron-ore production fell 2.2 percent in the first quarter to 70 million metric tons after heavy rains curtailed operations in southeastern Brazil, the company said April 17. BHP Billiton Ltd. (BHP), the world’s largest mining company, reported a 14 percent increase in production of the steelmaking raw material in the same period.

“In the first quarter, the volumes were negatively impacted by the adverse weather conditions,” Daniella Maia, chief analyst at brokerage Ativa SA CTV in Rio de Janeiro, said in a telephone interview before the earnings release. “Generally when we have a period with heavy rains, there is a higher level of humidity in the iron ore and that ends up reducing prices,” she said.

For the year, Vale’s profit is expected to decline to $18.2 billion from $22.9 billion in 2011, according to the average of 16 estimates compiled by Bloomberg.

Iron Ore Shipments
Vale dropped 1.5 percent to 41.09 reais in Sao Paulo today. The stock has fallen 12 percent in the past 12 months, more than the 7.8 percent increase in the benchmark Bovespa Index. (IBOV)

Earnings met analysts’ estimates for the first time in four quarters. It was the company’s third consecutive decline in quarterly profit.

Vale shipped 65.2 million metric tons of iron ore and pellets in the quarter, 4.2 percent less than a year earlier. Pellets are a processed form of iron ore used by the steel industry.

“The demand for our products continues strong,” Vale said in the statement, adding that iron ore and pellet shipments in March surged to 31.7 million metric tons.

Nickel Sales
Nickel sale volumes declined 3.4 percent to 56,000 metric tons in the quarter, while copper shipments rose 9.4 percent to 58,000 tons, the company said. Potash sales volumes fell 4.5 percent to 128,000 tons, Vale said.

Vale sold 47 percent of its iron ore and pellets to Chinese customers in the first quarter, up from 41 percent a year earlier. Europe bought 16 percent, down from 20 percent a year earlier.

“The impact of the recession in Europe persisted, causing the share of our shipments to the region to continue to trend downward,” Vale said.

The company’s total debt as of March 31 increased to $24.9 billion from $23.1 billion at the end of the previous quarter.

The price of ore with 62 percent iron content delivered to the Chinese port of Tianjin has risen 5.9 percent this year to $146.70 a ton today, according to a price index compiled by the Steel Index Ltd.

(Vale is scheduled to hold two conference calls with investors tomorrow in Portuguese and English at 9 a.m. and 11 a.m. New York time, respectively.)