Collapse in iron ore prices prompts Vale downgrade – by Joe Leahy (Financial Times – December 11, 2015)

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São Paulo – Brazil’s Vale, the world’s largest iron ore producer, had its rating cut to one notch above junk by Moody’s Investors Service because of the collapse in iron ore prices.

The downgrade with a negative outlook, which follows a similar move by Moody’s at Vale rival Anglo American, comes as the Brazilian miner also faces potential legal action over an accident at one of its investments in Brazil.

“Constraining the ratings are the negative outlook for iron ore and base metals prices, and our expectation that prices will not experience any meaningful recovery before 2017, as a consequence of the slowdown in China’s economic growth and steel production,” Moody’s said.

The collapse of the iron ore price has led Vale to attempt to cut costs, with the price of the ingredient for steelmaking down 46 per cent this year to $38.52 per tonne. This is the lowest in Metals Bulletin records since 2008.

Moody’s also predicted that prices for base metals such as nickel, of which Vale is also the world’s largest producer, would remain low, putting pressure on the company’s cash flow.
It said for this reason it was downgrading the rating to Baa3 with a negative outlook from Baa2.

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