Vale Earnings: Higher Sales Volumes, Lower Unit Costs, and Improved Margins Likely in Future

No-moat Vale’s 2024 second-quarter result was similar to our expectations. Iron ore sales volumes, the main driver of earnings, were 7% up on the second quarter of 2023 and 25% higher than the prior quarter. Sales volumes of 144 million metric tons for the first half are 10% higher than last year, but Vale reiterated guidance for 2024 production of between 310 million and 320 million metric tons. Despite the strong first half and sales typically being seasonally higher in the second half, we think 2024 sales volumes are likely to be lower than production, as has typically been the case in recent years. As such, we continue to forecast 2024 iron ore sales of 305 million metric tons, similar to 2023. Average iron ore fines prices of about USD 98 per metric ton for the quarter and USD 99 for the half are consistent with our full-year assumption of about USD 101. However, unit cash costs were modestly disappointing, at about USD 25 per metric ton for the quarter and USD 24 for the half, above Vale’s unchanged guidance of USD 21.50 to USD 23. However, likely higher sales volumes in the second half should see unit cash costs fall, and we maintain our full-year estimate of around USD 22.50, which is similar to last year.