Vale Downgraded To Hold As Iron Ore Price Slump Hits Miners
Zacks Investment Research | Mar 28, 2018 10:34PM ET
On Mar 29, Vale S.A. (NYSE:VALE) was downgraded by a notch to a Zacks Rank #3 (Hold). Going by the Zacks model, companies holding a Zacks Rank #3 have chances of performing in line with the broader market in the next one to three months.
Why the Downside?
Miners are in doldrums as iron ore prices enter bear-market territory. On Mar 21, spot price for benchmark 62% fines dropped 3.1% to $63.12 per ton, the lowest level since Nov 21. In the last three months, prices of this major steel making product have dipped nearly 2% to $65.99 per ton as of Mar 28, 2018.
Subdued construction activity in China along with speculations concerning the possible impact of worldwide trade tensions as well as continuation of some production limitations China (on account of air pollution) is expected to negatively impact the metal’s prices going forward.
Notably, Iron ore is a major product traded by mining behemoths like Vale, BHP Billiton (LON:BLT) Limited (NYSE:BHP) , Rio Tinto (LON:RIO) plc (NYSE:RIO) and Golden Minerals Company (NYSE:AUMN) . Hence, slump in its prices might pressurize the top line of these companies.
Moreover, we fear that headwinds like extensive business rivalry, oversupply situation in the mining market or occurrence of an environmental hazard might prove fatal to Vale.
Factors Still in Favor
Decline in iron ore prices is a major cause of worry for Vale. However, the stock retains certain growth drivers that might help in mitigating existing adversaries.
In the last six months, Vale’s shares have rallied 23.8%, outperforming 21.5% gain recorded by the Zacks Investment Research
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