Re VALE - no I don't expect recovery of the construction in China. It may not be needed because VALE is dirt cheap on virtually any metric that I am looking at (P/B, PE, EV/EBITDA) and iron ore pricing has been remarkably resistant so far and actually was firm last quarter. More importantly, VALE benefits from the lower Brazilian real (cost are in real but iron ore trades based in US$) and they have some of the largest and highest quality resources on the planet, on par or better than those of BHP. So they will be the lowest cost producer going forward most likely, together with BHP and some of the better RIO mines probably.
Even if a price war were to break out, VALE would emerge from this probably in a stronger position than they are right now, since many weaker competitors would not be able to make it (CLF comes to my mind).
I do not know if construction in China declines but keep in mind that China is not just the largest importer of ore, but they also are the world factory, so much of the steel is re-exported as finished goods in other countries. If China were to loose it's competitive edge, it would simply mean that those products would be produced elsewhere and VALE or BHP would just sell their ore to those emerging countries. Most forecasters assume lower iron ore prices in a few years in the 80-90$ range, so some sort of reduced demand is already priced in.
My take is simply that if you buy world class assets below tangible book and the company has a decent balance sheet, things should work out in the long run with almost any scenario. |
