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Vale, the world’s second-largest miner by volume, has reported that its first-quarter profit nearly halved from a year earlier after slowing growth in China pushed down the price of iron ore, the group’s most important product.
Falling demand from China, which accounted for 31 per cent of sales in the quarter, has pushed down global iron ore prices, hitting the profits of all major mining groups.
The Brazilian company said late on Wednesday that net profit in the quarter fell 44 per cent, to $3.83bn from $6.83bn in the same period a year earlier, citing heavy rains that curtailed production as an aggravating factor.
“This year, the abnormal rainfall in Brazil has magnified the seasonal effect on revenues and costs, which combined with the reduction in iron ore and pellet prices led to narrower operating margins and lower-than-expected earnings and cash flow,” the company said.
In results that were broadly in line with analysts’ estimates, Vale reported net revenue during the first quarter of $11.05bn, down 16 per cent from a year earlier and down 23 per cent from the previous quarter.
Earnings before interest, taxation, depreciation and amortisation for the quarter fell to $4.97bn from $9.18bn, while earnings per share dropped to 74 cents in the first quarter from $1.29 a year earlier.
While iron ore prices are sharply lower than the beginning of last year, they have staged a tentative recovery in recent months amid improving sentiment in China’s steel industry. After falling to a low of $116.75 in October, benchmark prices rose above $150 a tonne earlier this month.
Despite the large profit decline in the first quarter, Vale was relatively upbeat on future shipments.
“The rainy season in the southern hemisphere is past, iron ore shipments surged in March and we are confident of delivering the volumes planned for this year,” Vale said. “The global market for minerals and metals is estimated to remain tight, and we are well prepared to continue to exploit the opportunities for value creation.”
In an interview with the Financial Times this month, José Carlos Martins, the company’s head of ore and strategy, forecast iron ore prices would not go below $120 a tonne in the long term, partly because of tight global supplies.