Vale SA (VALE), the world’s largest producer of iron ore and nickel, has materially downgraded its production targets for FY20, due to the fallout from Covid-19.
The Brazilian multinational is now looking for 310-330mt of iron ore, down from 340-355mt previously. It reduced guidance for pellets to 35-40mt from 44mt, copper to 360-380kt from 400kt and nickel to 180-195kt from 200-210kt, while removing coal guidance altogether.
Vale also released its Q1 production figures Friday after-market. Production was generally in line with forecasts, although the smaller manganese and coal divisions posted a notable miss and nickel was slightly stronger.
“We would expect consensus FY20 earnings downgrades following these results” RBC Capital analyst Tyler Broda told investors on April 20.
“Brazilian real weakness, expectations in the market that Vale was struggling with production and potential support to iron ore price sentiment from the guidance cut are likely to help offset some of the share price impact” he wrote.
Looking forward, the analyst continues to note challenges facing the iron ore markets. He calculates a sizable 6% surplus for 2020 and sees risks of prices falling significantly, especially as ‘Chinese steel prices begin to fade into weak demand’.
Broda currently has a hold rating on the stock with a $9.25 price target, but believes VALE looks fundamentally inexpensive and adds “we would look to get more constructive once the iron ore market transitions through this potentially weaker period.” Shares are currently trading down 37% year-to-date.
Overall, however, Vale retains its bullish Strong Buy analyst consensus on TipRanks. And with a $11.14 average price target, analysts see over 33% upside potential ahead. (See Vale’s stock analysis on TipRanks).
Vale is scheduled to report its Q1 financials after market on April 28.
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