Is it the end of iron ore? Why does Vale (VALE3) focus on a commodity that suffers from demand? – Money Times

OK
Vale is focused on investing in iron ore (Image: Reuters/Washington Alves)

THE OK (VALE3) is focused on iron ore. This is what the Brazilian mining company shows when signing an agreement for the sale of Companhia Siderúrgica do Pecém (CSP).

According to the analyst Mirae AssetPedro Galdi, the company is concentrating its production, as it has high quality mines and assets in the miningwhich sets it apart from its competitors.

This Wednesday (28), Vale signed a binding agreement with ArcelorMittal for dispose of its participation in the CSP. CSP is a joint venture between Vale (50%), Dongkuk (30%) and Posco (20%), with an installed capacity of three million tons of steel per annum.

With the sale, the Brazilian mining company distances itself from the steelworks and starts to focus its business on ore. However, with less demand for commodity coming from China, the mining goes through instabilities.

Given this scenario, why is Vale selling off assets that diversify its portfolio, seeking to focus its business on iron ore?

Is it the right time for Vale to focus on ore?

According to the Mirae analyst, Vale participated in the creation of almost all steel mills in Brazil in the past, enabling supply and initial investments. “After the maturation time of these projects, the mining company breaks up to dedicate itself to its basic business: mining, with a view to environmental improvements”, says Galdi.

Galdi explains that Vale stands out for the high quality of its mines and assets. The analyst also points out that, today, about 80% of the iron ore sold by the Brazilian mining company is considered premiumwith better price.

In comparison, the analyst says that in China, where the steel industry is responsible for 50% of the world’s steel, iron ore reserves are of low quality and, therefore, the country will “eternally” depend on cargo coming from Brazil. , Australia and Russia.

“China will continue to be important for the sector”, reiterates the analyst.

Is it the end of iron ore?

The uncertainties that hang in the Chinathe main buyer of ore exported by Brazil, should make the Demand for the most challenging product for the remainder of the year.

In the second quarter of this year, for example, Vale’s own iron ore production dropped 1.2% year-on-year, reaching 74.1 million metric tons.

Already anticipating this uncertainty for the remainder of 2022, Vale revised its guidance, with an expected production of 310-320 million tonnes of iron ore. The original projection contemplated volumes in the order of 320-335 million tons.

Who also signaled the end of this era of record returns in mining was the Rio Tinto (RIOT34), when reporting a big drop in profit for the first half of this year.

The Anglo-Australian mining company had net income of $8.91 billion between April and June 202228% lower than the gain recorded in the same period last year, since the prices of iron ore were not as strong as expected and costs increased.

According to the company’s chief executive (CEO), Jakob Stausholm, the “market environment became more challenging towards the end of the period”.

Mirae analyst Galdi sees some important points, which are being strongly affected in the current scenario:

  • The impact of the Pandemic is still present in the lack of production inputs in different chains;
  • The war in Ukraine has destabilized the flow of different commodities in the world;
  • The world may be heading towards a recession in major consumer markets (Europe and the USA), which together put pressure on all companies in the steel chain.

Despite this scenario, Galdi says that, in the long term, volatility will be overcome and iron ore will once again have its prominence.

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O Money Times publishes informative articles of a journalistic nature. This publication does not constitute an investment recommendation.

About Yadunandan Singh

Born in 1992, Yadunandan approaches the world of video games thanks to two sacred monsters like Diablo and above all Sonic, strictly in the Sega Saturn version. Ranging between consoles and PCs, he is particularly fond of platform titles and RPGs, not disdaining all other genres and moving in the constant search for the perfect balance between narration and interactivity.

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