Vale downgraded at Wolfe as iron ore past prime, copper priced for perfection

Vale (NYSE:VALE) -1.3% in Wednesday’s trading as Wolfe Research downgrades shares to Underperform from Peer Perform with a $10 price target, saying it anticipates structurally weaker Chinese demand and new low-cost capacity ahead from the giant Simandou iron ore project in Guinea.

Wolfe analyst Timna Tanners says her conviction on shrinking Chinese steel consumption is supported by new government initiatives to support home prices that mandate fewer homes built, which will hurt rebar demand over the long term, prompting her to cut iron ore price forecasts to $109/ton from $113 in 2024 and to $100/ton from $108 in 2025.

Teck Resources (TECK) is Tanners’ preferred investment vehicle to play copper because of its superior balance sheet, shareholder returns, and growth portfolio, with its Q3 earnings print likely to be overshadowed by the QB2 operational update and guidance, but she remains wary of the premium valuations for Freeport McMoRan (FCX) and Southern Copper (SCCO).

Tanners says her favorite commodity is aluminum, foreseeing a rising cost curve driven by tight alumina markets, and she likes Alcoa’s (AA) greater alumina exposure following the close of its Alumina Ltd. acquisition, and she sees further benefit from management’s self-help cost-saving initiatives.