February 11, 2010 / 8:19 PM / in 10 years

Vale sales disappoint, analysts to revise outlooks

* UBS, Banco do Brasil to lower share price outlooks

* Sales fall short of market expectations

* Iron ore, nickel prices to help 2010 results

By Denise Luna

RIO DE JANEIRO, Feb 11 (Reuters) - Some analysts will probably slash their stock price target for Brazilian miner Vale VALE5.SA(VALE.N) after its disappointing fourth-quarter results, even as the market for iron ore is poised to enjoy one of its best years ever in 2010.

Late on Wednesday, the world’s largest iron ore producer reported profit of 2.63 billion reais ($1.4 billion), down 12 percent from 3 billion in the prior quarter. A Reuters poll of six analysts expected Vale to post net income of about 2.9 billion reais for the quarter.

“The results called into question our expectations and the market’s, especially on costs,” said UBS analysts in a statement on Thursday. “We are going to revise our numbers.”

In a similar tone, Banco do Brasil (BBAS3.SA) analyst Antonio Emilio Ruiz also said he would likely revise down his expectations.

“Even with the increase in the price of iron ore forecast for this year, I will have to lower the price (target). I had hoped at least for stable sales in relation to the third quarter,” Ruiz said.

The results underscore the many challenges faced by Vale in the face of last year’s global recession and heightened government pressure to reshape management decisions.

Quarterly results were unusually volatile and affected by a series of one-off items related to output cuts and the resumption of idled mines throughout the economic downturn.

Nonvoting shares of Vale, the second most-widely traded in Sao Paulo’s stock exchange, fell over 2 percent in early trade, but recovered later on Thursday. Later in the session, they rose 1.1 percent to 42.66 reais.

Net revenue tumbled 33 percent as shipments to North America were more than halved and a stronger currency slashed the value of exports.

The company noted that supply bottlenecks also hurt shipments, unlike the previous two quarters when demand outpaced supply. But Vale executives said on a Thursday morning conference call that the company had completed capacity investments in the port of Tubarao, which they now consider their most efficient export corridor.

“It alarmed me a bit to see the fall in ore sales, but copper and nickel fell too,” Ruiz said.

Analysts at Brascan is so far maintaining a buy recommendation on Vale shares as they expected a 25 percent increase in term ore prices in 2010.

“Considering the probable negative impact on Vale shares in the short-term due to the weak results, a good opportunity to buy could be created. So we are maintaining our favorable view of the iron ore market,” said Brascan in a report.

A labor strike at Vale’s Sudbury nickel operations in Canada also weighed on results.

Yet most analysts polled for Vale’s earnings survey said they predicted an increase of around 40 percent in iron ore prices this year, due to a tight seaborne market that is operating almost at full capacity.

“The results came in lower than I had hoped, though they were in line with the market. I probably erred in calculating the volume of sales,” said SLW brokerage analyst Pedro Galdi who forecast profits of 4 billion reais said.

“The results were not positive, but the scenario remains positive as (Vale) will sell more ore this year,” he added.

He added that Vale was the only of the three main iron ore miners, including BHP Billiton BLT.L and Rio Tinto (RIO.L), to invest in capacity and logistics during the crisis, with a view to attend to eventual demand growth in 2010.

“Vale has everything to have an excellent year,” said Galdi.

Writing by Reese Ewing; Editing by Carole Vaporean

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