(Bloomberg) -- Vale SA, one of iron ore’s biggest swing factors, may determine whether prices of the steelmaking ingredient break through to multiyear highs or retreat once again.
The Rio de Janeiro-based mining company reports quarterly production after the close of trading Monday. Anything significantly below the 72 million-metric ton average analyst estimate is likely to be cheered by bulls.
Since surging last year amid robust demand from Chinese steel mills and pandemic-related supply disruptions, iron ore futures have moved around in a trading range of about $145 to $175 a ton. With prices back toward the top of that range, traders will be paying close attention to Vale. A bumper quarter may send futures back down.
While Vale’s output is expected to come in below the fourth quarter on seasonal factors, it’s estimated to be higher than the same period last year as the company continues its recovery from an early-2019 tailings dam disaster that prompted shutdowns. The ramp-up means Vale has an outsized impact on prices in a tight market, especially after Chinese steel output jumped in March. This year, Vale is expected to account for 83% of global supply growth, according to BloombergNEF.
Read More: Vale’s Iron Mining Activity Slowed in 1Q, Satellites Show: BNEF
The combination of recovering production and high prices has sent earnings back to supercycle levels of a decade ago. With management focused on existing assets rather than splashing out on deals as it did in previous booms, Vale is rewarding investors with dividends and a buyback.
Its Sao Paulo-listed shares have more than doubled in the past year, narrowing a valuation discount to peers Rio Tinto Group and BHP Group, whose Australian mines are closer to China. Vale fetches 4.6 times estimated profit versus BHP’s ratio of 12 and Rio Tinto Group’s 7.8.
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