Vale set for worst losing streak since 2008

May 30, 2014 07:32 AM

Vale SA, the world’s largest iron-ore producer, is posting its worst streak of monthly losses in five years as prices for the steel-making ingredient sink.

The shares fell 3.2 percent to 25.79 reais at 11:42 a.m. in Sao Paulo today, bringing losses this month to 2.4 percent. The stock is now set for its seventh monthly drop, the longest losing rout since 2008. Brazil’s benchmark Ibovespa gauge is up 0.2 percent this month, its third straight gain.

Iron ore sank 4.1 percent today to $91.80 a dry ton and has lost 13 percent in May, a sixth monthly retreat. That’s the longest losing run since the data series began in November 2008. The commodity is down 32 percent this year, entering a bear market in March as the biggest miners raised output, spurring forecasts for a rising global surplus while slowing growth in China capped demand.

“The best way to begin to understand Vale’s weakness is to look to China,” Lawrence Creatura, a Rochester, New York-based fund manager at Federated Investors Inc., which oversees about $366 billion, said in a telephone interview. “If China were to decelerate further, it’s reasonable to expect pressure on commodities to continue.”

China’s economy is forecast to expand 7.3 percent this year, which would be the weakest pace since 1990, according to a Bloomberg survey of analysts this month.

Vale posted a steeper decline in first-quarter profit than analysts expected after selling the steel ingredient 25 percent cheaper than a market reference price. Net income was 49 cents a share, trailing an average estimate compiled by Bloomberg of 53 cents excluding some items.

Price Forecasts

Iron ore prices are unlikely to rise in the next two to three months because of increasing supplies from imports, high port inventories and a slowdown in steel-product demand, China’s National Development & Reform Commission said on May 28.

Vale, based in Rio de Janeiro, expects prices for iron ore to average $110 a ton over the next two years, Chief Executive Officer Murilo Ferreira said April 3.

Fortescue Metals Group Ltd. Chairman Andrew Forrest said today ore may drop to as low as $80 over the next 12 months, the lowest level since 2009. Goldman Sachs Group Inc. forecasts the raw material will average $109 in 2014 and $80 next year. The bank boosted its estimate for next year’s surplus to 175 million tons from 145 million tons in a May 20 report.

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