Vale S.A. VALE announced that it has suspended production at a few of its operations due to heavy rainfall in the southeastern Brazilian state of Minas Gerais. However, the company assured that the Northern System (comprising the S11D and Carajás mines) continues to operate as per plan. The iron miner stated that the production guidance of 320-335 million tons (Mt) for 2022 remains intact as it already factors in the impact of the rainy season on all operations.
The company had to partially halt trains service on the Vitória-Minas railway and production in the Southeastern and Southern Systems to ensure the safety of employees and communities. In the Southeastern System, the railways were halted in Rio Piracicaba – João Monlevade stretch. The company had to suspend production at the Brucutu mine and the Mariana complex due to a lack of transportation triggered by the heavy rainfall. The company stated that the Itabira complex’s production has not been impacted.
In the Southern System, production at all the complexes had to be halted due to disruptions in the BR-040 and MG-030 highways and to ensure the safety of employees/third parties' transit and the mining fronts infrastructure. Overall, the Southeastern System and Southern System contributed to around 40% of Vale’s total iron ore output in the first nine-month period of 2021. The halted operations accounted for about 31% of its output in the first nine months of 2021.
The miner also stated the rains had not changed the alert level for any of its tailing dams, which are under constant monitoring. Meanwhile, Vale is taking all the measures to resume activities, and focusing on the necessary precautions to ensure the safety of employees and communities located nearby its structures.
Heavy rainfall in southeastern Brazil has prompted other miners to suspend operations as well. Brazilian steelmaker CompanhiaSiderurgica Nacional or National Steel SID and its steel mining subsidiary CSN Mineracao SA announced a halt of operations at the Casa de Pedra mine. It added that port operations at the Itaguai coal terminal have also been suspended due to excessive rains.
Rainfall is expected to remain heavy in most of the state and lead to closed roads and railways. Even though Vale’s production guidance remains intact, worsening of the situation might put the projection at risk. This would, however, stoke supply concerns and provide support to iron ore prices. Iron ore prices are currently at $120 per ton — close to an over two-month high of $122 per ton on Dec 21, 2021. Iron ore prices are being buoyed by hopes of easing of steel production controls in top steel producer China after the Beijing 2022 Olympics next month.
Shares of Vale have fallen 21.2% over the past year compared with the industry’s decline of 20.3%.
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The downtrend in both Vale’s share price and the industry over the said time period was primarily due to the plunge in iron ore prices because of the intensified curbs on steel production in China that impacted demand for iron ore. However, iron ore prices have recently picked up on supply constraints and prospects of improving demand in China. China’s steel mills are anticipated to increase production as some companies completed crude steel output reduction targets. China’s property sector is showing signs of improvement. This is likely to support iron ore prices, which bodes well for Vale.
Zacks Rank & Stocks to Consider
Vale currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks from the basic materials space are Commercial Metals Company CMC and MP Materials MP.
The Zacks Consensus Estimate for Commercial Metals’ current fiscal-year earnings has been revised upward by 7% over the past 60 days. The consensus mark indicates year-over-year growth of 10.5%.
Commercial Metals has a trailing four-quarter earnings surprise of 7.4%, on average. CMC has rallied around 65% in a year. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for MP Materials’ current fiscal-year earnings suggests a year-over-year growth of 37.9%. The estimate has moved up 35% over the past 60 days.
MP Materials has a trailing four-quarter earnings surprise of 154.9%, on average. MP’s shares have appreciated around 55% over the past year. The stock currently sports a Zacks Rank #1.
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