Brazil's Vale upbeat about commodities scenario

Brazilian mining titan Vale is optimistic about this year’s commodities scenario amid growing demand from Asia.

The company will focus investments on iron ore, copper, and nickel. 

"We are very confident that we will generate substantial cash and dividends. We have a very bullish view on copper, we want to speed up our copper projects, we also want to continue strengthening our operations in iron ore," CEO Eduardo Bartolomeo (pictured) said during the company's 2020 results call. 

Bartolomeo ruled out acquisitions amid signs of an emerging commodities supercycle. 

"We have a well-established capex. There is a scenario that we see with positive eyes, for copper, nickel, with high prices and also with a sustainable price for iron ore. We will focus on where we have a major know-how, working on projects on our existing platform," added Bartolomeo. 

Vale posted net revenue of US$40bn in 2020, up 7% from US$37.6bn in 2019, while net profit was US$4.43bn, reversing a net loss of US$1.68bn. 

The company's iron ore production capacity is 322Mt/y which is projected to reach 350Mt/y by end-year and 400Mt/y by end-2022. 

Meanwhile, Vale reduced its estimate for copper production this year from 390,000t to 360,000t-380,000t. 

Fitch Ratings has also improved its forecasts for iron ore, nickel and copper. The agency projects an iron ore price of US$125/t by end-year, up from the previous estimate of US$75/t. Nickel is expected to reach US$15,000/t, up from US$13,250/t, and copper will fetch US$7,200/t, up from US$6,000/t.

"Our revision of all iron ore price assumptions is the most significant change and is driven by tight market supply, which we expect to continue in the next couple of years, and the absence of material new projects over a long period that could offset depleting mines," Fitch said in a note.

"We have increased the short-term copper price assumption due to strategic purchases by the China State Reserve Bureau and supply risks in 2021, including renewals of labor contracts in Chile and Peru, which may result in strikes. Medium-term prices will be supported by balanced market and energy transition trends as copper is used in charging infrastructure, cabling, electric vehicles, wind generators and transformers," it added.

Fitch Ratings also projects a nickel supply deficit from 2025 because of increased use of the metal in batteries.

CAPEX

Vale will invest US$5.8bn this year, an increase of 31% compared to 2020.

The increase is “due to mainly a major intensity of investments in iron ore waste filtering plants, which aims to reduce Vale's dependence on tailings dams; greater intensity of investments in the North System project and start of construction of the Serra Sul project; investments in solar energy, such as the Sol do Cerrado project … and a recovery of the investments that was postponed in the 2020 investment program due to the COVID-19 pandemic,” according to Vale’s investment report.