Credit Suisse Maintains Vale At Underperform, Lowers Price Target To Reflect Deflated Commodity Prices

Ivano Westin of Credit Suisse maintained an Underperform rating on shares of Vale VALE on Monday with a price target lowered to $7.50 from a previous $10.70 due to lower commodities prices. Westin is forecasting a “lackluster” steel production with an average nominal iron ore price of USD 73/t in 2015-2016 and USD 75/t through 2019. The analyst lowered his long-term price assumption to USD 85/6 from USD 90/t. Westin also downgrading his nickel prices forecast to US$ 17,625/t in 2015, US$ 21,250/t in 2016 and US$ 21,000/t in 2017. Finally, the analyst also downgraded his copper price outlook to US$ 6,800/t in 2015, US$ 6,625/t in 2016 and US$ 6,600/t in 2017. With that noted, Westin sees Vale's Base Metal division generating $3.6 billion in EBITDA during 2015 and accounting for 40 percent of consolidated EBITDA of $9.9 billion. The analyst notes that these figures are insufficient for the company to meet its capex plan and financial expenses. “On a bottom-up perspective, we believe in the company's commitment to cost cutting and capex optimization aiming to offset lower commodities prices, but we still expect further pressure on Vale's cash flow in the years ahead,” Westin wrote. Under a worst case scenario, if current spot levels for iron ore, nickel and copper remain in the long run, Westin's valuation would be reduced to $3.7 per share. However, the analyst does state that this is “unlikely to materialize.”