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(Bloomberg) -- A weaker China economy and battered iron ore prices have helped drive down Vale SA’s stock, making investors wary of uncertainties plaguing one of the world’s top suppliers of the steelmaking ingredient.
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A persistent crisis in China’s property sector and its impacts on iron ore — a metal that accounts for roughly 80% of Vale’s revenue — have led investors to trim allocations in the Brazilian company in the past year. That has sent Vale shares to their lowest level since 2020, erasing more than 100 billion reais ($17 billion) in market value in 2024.
The decline has continued this year, causing the Rio de Janeiro-based miner to lose its rank as Brazil’s third-largest publicly traded company.
“There seems to be a bit of fear that you might buy Vale, but then China gets worse and you lose money,” said Florian Bartunek, chief investment officer and co-founder of Constellation Asset Management.
Vale’s downturn continues even after resolving many issues that soured investor sentiment, including a messy succession battle that ultimately saw finance head Gustavo Pimenta land the chief executive officer role. Vale also reached a settlement for a deadly mining disaster in 2015 and renegotiated a deal with the government for rail access to its key mines last year, ending two other overhangs.
“Unfortunately, now that the company has gotten things fixed, everybody’s worried about China again,” said Josh Rubin, a portfolio manager at Thornburg Investment Management.
About half of Vale’s revenue comes from China. The company shipped 185.5 million metric tons of iron ore to the Asian nation in 2023, almost 60% of Vale’s annual output.
China’s slowing economy has hurt real estate and construction, curbing demand for iron ore just when big miners are boosting global supplies. The price of the steelmaking ingredient fell more than 25% last year, ending December at around $100 a metric ton.
At that price, Vale’s dividend and share buybacks could halve to $2.1 billion this year and operating cashflow would shrink to the lowest since 2016, according to Bloomberg Intelligence.
Iron ore prices bounced back a bit in January on expectations of more stimulus from Beijing, but China is shifting its focus to greener, high-technology growth and consumption — shrinking steel’s importance to its economy.