Exporting iron ore to China just got even more profitable thanks to record prices, as was made very clear in the March quarterly financials from Vale, the big Brazilian miner and exporter.
Vale reported a record first quarter profit and that sends a big signal that Australia’s iron ore giants – BHP, Rio Tinto and Fortescue – are looking at another huge half for record profits of their own.
While the price of 62% fe fines shopped to China rose 25% in the three months to March, Vale (which ships lots of 65% Fe fines at a premium to the 62% price) saw net profit surge many times over to $US5.546 billion from just $US239 million in the first three months of 2020.
Earnings before interest, taxes, depreciation and amortisation, (EBITDA), jumped to $US8.35 billion. Vale said the pro forma EBITDA figure – with some non-recurring items removed – was $US8.47 billion.
EBITDA for the company’s ferrous minerals division (iron ore) was $US7.81 billion, which Vale said was an all-time record for the first quarter result.
Vale reported revenue of $US12.6 billion, with more than half courtesy of China. That was up from $US6.969 billion in the first three months of 2020.
Net operating revenues from the Ferrous Minerals segment soared 98% year over year to $US10.5 billion. Base metals’ net operating revenues improved 49% to $US1.99 billion. The Coal segment’s revenues declined 38% to just $US92 million.
Vale said that while sales volumes for iron ore and nickel were higher than year-ago levels, volumes for thermal coal, metallurgical coal and copper fell.
Net debt came in just over $US2 billion.
That is a big hint as to just how well BHP, Rio Tinto and Fortescue metals are doing at the moment as they look at profits even larger than seen in the six months to December.
For example, BHP reported an operating profit of $US9 billion for the six months to December 31. That could easily grow to $US15 billion or more this half thanks to not only the high iron ore prices, but big price rises for copper, oil and gas.
“I am confident that our positive financial results reflect our consistency in delivering our promises in de-risking Vale,” CEO Eduardo Bartolomeo said in a statement.
He referred to the $7 billion Brumadinho global agreement becoming effective, selling Vale’s troubled New Caledonian nickel business and this month’s announced share buyback programme of up to 5.3% of shares.
Vale said the under-supplied scenario which led to a surge in iron ore prices in the first quarter remained, although it warned demand might be impacted by production cuts due to environmental restrictions in China in coming months
Vale said there were “no signals for any changes in the next quarter” to China’s restrictions on Australian coal, which would impact prices; and weather considerations were likely to support thermal coal prices (the floods in and around Newcastle had boosted steaming (thermal coal prices in March).
Vale forecast a “small surplus” in the nickel market in 2021 but said its long-term outlook for nickel remained very positive driven by the strong demand in the EV sector, with cost of ownership nearing parity with internal combustion engine vehicles.
“Global sales of electric vehicles are on track to increase by over 80% from 1Q20 led by robust growth in China and moderate increases in Europe and North America,” Vale said.
It had a positive near-term view on copper, thanks to robust demand and supply concerns, with containing COVID-19 proving difficult, particularly in Latin America (and in Brazil).
Fastmarkets MB’ index for iron ore 62% Fe fines rose by $US1.73 tonne or 0.9% to $US195.31 a tonne on Tuesday, the second straight day in a row for a new all-time high.
