Vale SA (ADR) (NYSE:VALE) reported production volume for the fourth quarter and is setting records quickly. That’s an issue though as wholesale prices are softening bringing concern to investors that the company is losing profit margins. The company ramped-up two plants in Brazil. Because of this a record amount of Iron Ore was captured from the mines. They totaled an increase in output of 10.4%. Vale actually owns the largest iron ore mine on the planet. Copper production hit an annual record also showing an increase of 11.4%. That fell short of the company’s guidance and spooked traders. There were operational issues with nickel production but the company overcame those and still met expectations on production. On the coal segment there was a stoppage for half the year at its Integra coal mine and that caused the company to miss production guidance.
Soft Wholesale Prices
Commodity prices have been under pressure for some time now. Iron ore is needed to produce steel. The latest data shows hot-rolled coil prices at their lowest since 2009. Copper inventories continue to rise in Europe and especially Asia. These all hurt the company’s ability to make a profit of the commodities. And that comes at a time when their production is soaring. That is a lethal combination and can badly damage earnings for the coming year. Commodity prices are affecting the whole industry and most of the players are scrambling to find a solution to the issues. At some point wholesale prices become so low, that production cost more than the company can sell the product in the open market.
Vale SA (ADR) (NYSE:VALE) engages in research, production and the sale of various commodities and their by-products. They also operate transport systems for the movement of iron ore, copper and nickel. They produce non-ferrous materials and also have a fertilizer segment. They were founded in 1942and are based in Rio De Janeiro, Brazil.
The stock is stuck in a sideways pattern. There isn’t a lot to motivate it and unless something gives in the wholesale market it could stay that way for a while.