Vale (VALE +2%) expects Russia’s invasion of Ukraine will increase the premium that steelmakers pay for iron ore pellets beginning in Q2, as the two countries together account for ~30% of the 120M-ton global market.
“The big question is how long this tension will last,” Vale iron ore head Marcello Spinelli said on Friday’s earnings conference call, according to Bloomberg.
The miner also sees the Russian invasion likely accelerating gains in the price of nickel, a market that was already characterized by low inventories.
Nickel prices have jumped 40% YTD, and Vale executives said on the call that they expect demand will double in the next decade as automakers transition onto electric vehicles.
Also, CFO Gustavo Pimenta said on the call that Vale would not take on responsibility for debt held by its Samarco joint venture with BHP.
Analysts were generally disappointed by Vale’s weaker operating income and low cash flow generation, according to Reuters, with higher provisions related to two dam disasters.
Vale’s Q/Q decline in operating income was driven mostly by lower realized iron ore prices, which more than offset strong iron ore sales and lower cash costs, while provisions led to weak cash generation and were a negative surprise, Itau BBA said.
Vale’s operating figures were solid, but cash generation was weak and the provisions “might have taken some investors off guard,” analysts at Bradesco BBI said.
Vale reported recently that Q4 iron ore production fell 2.4% Y/Y while iron ore sales edged 0.4% higher.