Vale downgraded at UBS on downside outlook for iron ore fundamentals

Vale (NYSE:VALE) -3.6% in Monday’s trading as UBS downgrades shares to Neutral from Buy with an $11.50 price target, cut from $14, and iron ore prices dropped to ~$100/ton after the latest stimulus measures from top producer China disappointed investors.

UBS analysts say Vale (VALE) has made significant progress in 2024, improving operational performance, settling the Samarco litigation in Brazil, and appointing a new CEO, with the potential for further progress over the next six months with improving government relations to facilitate the new rail concession agreement and modernization of cave regulation.

However, UBS says it remains concerned about medium-term iron ore fundamentals, with downside to the spot price as China’s steel exports are seen as vulnerable to global restrictions and unlikely to be fully offset by government stimulus.

UBS expects iron ore futures to hold at ~$100/ton in 2025 and then fall back towards cost support at $80-$90/ton as supply rises, but Vale (VALE) should benefit in the medium term improving volumes, lower costs, and higher premiums as its three key growth projects ramp up and China’s steel industry starts to decarbonize, reducing the impact of lower prices.