Bearish Bets on Vale Surge to Record High as Iron Ore Retreats – by Julia Leite and Juan Pablo Spinetto (Bloomberg News – March 18, 2015)

(Bloomberg) — Traders are increasing bets that Vale SA is poised for further declines after its shares hit a 10-year low.

Short interest in American depositary receipts from the world’s largest iron-ore producer jumped to a record 27.4 percent of shares outstanding Monday, according to data compiled by London-based Markit and Bloomberg. The ADRs added 0.2 percent to $6.12 at the close of trading in New York, paring losses in 2015 to 25 percent. They dropped 46 percent in 2014.

Prices for iron-ore, a key ingredient in steelmaking, have plunged 71 percent since peaking in 2011, helping send Vale shares to the lowest since November 2004 last week. Demand for the material hasn’t kept up with increased production by Vale and rivals Rio Tinto Group and BHP Billiton Plc amid a slowdown in economic growth in China, the biggest consumer.

“People are concerned, with some investors betting there’s too much iron ore and not enough Chinese demand,” said Ari Santos, an equity trading manager at H. Commcor in Sao Paulo. “And if ore falls, Vale suffers.”

China, which accounts for about half of Vale’s shipments and for more than two-thirds of global iron-ore imports, has set a 2015 economic expansion goal of about 7 percent, the lowest in more than 15 years.

Vale didn’t immediately reply to an e-mail seeking comment on the short positions on its stock.

A short sale is one in which stock is borrowed and sold, with the hope of profit by repurchasing the shares later at a lower price.

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