Brazilian iron ore giant
) reported its first loss in more than a decade on the back of weak
iron ore prices, write-downs, and soft global demand.
[caption id="attachment_58542" align="alignright" width="300"
caption="Off road truck at Vale's Conceiçao Mine, Minas Gerais
According to the
, "the Rio de Janeiro-based company posted a pre-tax loss of
$2.65bn in the fourth quarter - twice as big as analysts expected -
compared to a net profit of $4.67bn in the same quarter the
Vale, in addition to other miners such as Rio Tinto (
), struggled over the previous fiscal year as the result of
softening global demand, especially from China and the eurozone;
these economic conditions adversely affected the price of iron ore
which fell to a three-year low in September.
Given that Vale's equity performance is inextricably linked to
the price of iron ore, it's unsurprising that Vale has struggled
throughout 2012; the stock is down 27% on the year.
An additional consequence of weakening global demand was that
mining companies were forced to scale back capital-intensive
investments. As well, impairment charges for investments in a
multitude of investments from a Brazilian nickel mine to Australian
coal saw the company take a number of write-downs that hurt Vale's
For Vale's stock to get back on track, global demand must
pick-up. In light of the fact that the Chinese economy is starting
to pick up as last year's stimulus takes effect, iron ore prices
could continue to rebound. However, a dip in growth from American
sequestration or another manifestation of European uncertainty
could hinder iron ore prices.
In addition to depressed global demand, Vale's lackluster share
price has also been the product of
interference by the Brazilian government
. Although oil-producer Petrobras (
) has borne more of the brunt of President Dilma Rousseff's
policies, Vale's share price has also been hindered by government
Until this administration makes it clear that Vale will be
allowed to operate without the threat of excessive government
involvement, the stock's upside will remain limited.
Author and family are long VALE