Brazil’s Vale Needs To Turn Its Iron Ore Into Pixie Dust Before Investors Really Get Excited – by Kenneth Rapoza (Forbes Magazine -February 4, 2016)

Don’t believe the hype on raw materials companies today. Especially the China-bound miners like Brazil iron ore giant Vale . Thursday’s dubious 11.6% intraday rise in Vale shares will not stand. The same holds for rival company Rio Tinto and its Aussie business partner BHP Billiton .

All raw material plays rose on Thursday on a weaker dollar as the market considers a pauses in Fed rate hikes. While the stock has been beaten to smithereens over the last five years, losing nearly 90% of its share value, Vale’s business is in trouble.

Fitch said this week that the Vale and BHP joint venture, Samarco Mining, is heading to a default following last year’s rupturing of a dam. This will cost Vale and BHP hundreds of millions of dollars in legal fees and clean up costs. Not to mention reputational damage. But the real kicker likes far far away, in China.

China’s steel production will not recover this year, according to China Metallurgical Industry Planning and Research Institute. Demand for iron ore, which is used to make steel, is seen falling by at least 4%.

That number was forecast back in December. Unless the U.S. economy heats up, or China somehow decides it needs more bridges to nowhere and ghost cities, then Chinese demand is likely to fall even more as the global economy in general is forecast to slow more than expected, the International Monetary Fund’s Christine Lagarde said today.

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