Vale SA (NYSE:VALE) caught in steel industry gale

Posted by Lynn Eisler August 13, 2013 0 Comment 1553 views


Steel prices have taken a beating, primarily due to the decelerated growth in China and recession-hit Europe has only added to the misery of the industry. It’s not just the steel companies that have been hit but those that manufacture products used in its production as well. Companies like Vale SA (NYSE:VALE) manufacture iron ore and metallurgical coal, both of which are used in the steel industry.

Prices on the rise

The company’s shares have taken a massive beating since 2009 and have shown no signs of recovering. Since 2013 February, there has been a 26% dip in iron ore prices, from $115/dry metric-ton to $115. Despite the fact that they have dropped so sharply, in the recent weeks, steel prices have been on the rise. This indicates that iron-ore prices may be in for a boost as well. Hot-rolled steel band prices in China have risen by $11/ ton to $492 over the last 2 weeks. Global export prices increased by $12 to $546/ton.

Cost-cutting measures

In January 2013, VALE resorted to some drastic cost-cutting measures. It axed its $6M total dividend payout to $4B this year. That amounts to an equivalent of $0.776190372/ preferred and common share. This dividend payment will be broken-up into two parts. $0.437 will be paid-out on 30 April and the balance $0.339 will be paid on 31 October.

Not the only one

It goes without saying that most serious investors will prefer dabbling in stocks that do not chop their dividends, but VALE is totally dependent on the commodities market. Also, it is not the only iron-ore company to have slashed its dividend payout. Cliffs Natural Resources is another big player who has gone the same route.

Vale SA (NYSE:VALE) is the largest iron ore producer in the world. It also produces nickel, manganese and copper. Its other products are nitrogen, potash and phosphates that are used in the manufacture of fertilizers.

 


About Lynn Eisler

Lynn Eisler is a national news reporter focusing on economic issues, data analysis and the financial health of state and local governments. Lynn has been honored with the H.L. Mencken Award for Investigative Reporting, the Champion of Justice Award for reporting on the drug war, and the John Hancock Award for business reporting. Lynn was also a Knight Medical School Fellow at the University of Michigan.

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