Even with less iron ore being sold, Vale's pricing power has it beating earnings records...again.  Brazil mining company Vale (VALE) broke another earnings record when it announced net earnings of $6.8 billion in the first quarter, better than its last record met in the third quarter of 2010, when Vale’s net income was $6.03 billion, the company said after market hours on Thursday.  Vale is benefiting from the premium it receives on its high quality iron ore. Average iron ore prices for the first quarter stood at $126.19 per ton, up from $121.34 per ton in the fourth quarter and just $64.76 in the first quarter of 2010. Iron ore pellet prices, which is condensed high quality iron ore used in steel production, was $181.33 per ton, up from $179.53 per ton on average in the fourth and $99 in the first of 2010.  Vale’s pricing power coupled with its premium pellet products have helped it retain record earnings even though iron ore sales have declined.  In the first quarter, Vale sold 57.7 million tons of iron ore, down from 69.8 million in the fourth and 57.8 in the first quarter of 2010.  Meanwhile, iron ore pellet volume was 10.3 million tons, down from 10.6 million in the fourth. Vale did sell considerably more iron ore pellets locally and globally than the 7.7 million accounted for in the first quarter.  As a result of Vale’s pricing power and higher iron ore prices in global markets, net income rose 325.6% compared to the same period a year ago.  Vale is also sitting on tons of cash, with low leverage. It’s total cash base as of the first quarter was $11 billion, up from $9 billion in the last quarter. Gross debt to EBITDA fell in the first quarter to just 0.7x compared to 2.4 times in the same period last year.  First quarter adjusted EBITDA was $9.17 billion, a new record. Over the last 12 months ending March 31, EBITDA for Vale stands at $32.43 billion.  Vale’s total debt to enterprise vale was 13% in the first quarter, lower than 13.2% in the fourth and 13.4% in the first quarter of 2010. Total net debt stood at $11.9 billion as of the March 31.  Vale said in its report that the natural disasters in its second largest market, Japan, have not yet impacted global emand for iron ore. Japan imported 133 million tons of iron ore in 2010 from global suppliers, including Vale.  Japan’s slower economy has not resulted in a decline in global iron ore demand. Vale said that its nickel refinery in Matsuzaka continues functioning normally.  Inflation Pressures in Emerging Markets  Vale said it expects Central Banks in emerging markets to continue raising interest rates and using other measures to keep inflation in check. As a result, some growth will slow compared to 2010, but without a recesssion.  “We are expecting an increase in industrial investment and civil construction in the interior regions ofChina,” Vale said in its earnings report. “Even though there is a slowdown in the construction in residential real estate…the government program to build homes for low income buyers should maintain high demand for steel, iron ore and other metals.”  The Chinese government announced in March that they will build 36 million low income apartment units between 2011 and 2015, with 10 million units being built per year starting in 2011.  China imported $4.02 billion worth of iron ore and metals from Vale in the first quarter, down from $5.2 billion in the fourth quarter, but nearly double the $2.1 billion in the first quarter of 2010.  Vale said that despite China’s engineered slowdown of its economy, iron ore demand continues strong, with 117.3 metric tons imported in the first quarter of 2011, up 10% from the same period last year. China accounted for 29.7% of Vale’s revenues, with Brazil in second at 18.7%, followed by Japan at 11.1%, Germany at 6.8% and Italy and the US tied at 3.5%.  Vale is the world’s leading iron ore exporter. Iron ore accountted for 69% of the company’s $13.54 billion in operational revenue in the first quarter.
Weaker iron ore sales not enough to drag down Vale earnings. The Brazilian miner broke another record in the first quarter, and says despite an engineered slowdown in China, its number one market is likely to see solid demand for years to come.