Vale just announced that it now expects 2021 iron ore production to be 315-320 MMT, versus its previous guidance of 315-335 MMT. However, Vale had previously informed that 2021 production was likely to end up below the mid-point of its guidance, due in part to the company’s “value over volume” strategy.

For 2022, the company now guides for iron ore production of 320-335 MMT, which compares with its previous guidance for year-end capacity of 343 MMT for 2021e and 370 MMT for 2022e – growing to 400 MMT in the “medium term” and 400-450 MMT in the “long term”. Hence, mid-point 2022 iron ore production capacity would have been roughly 360 MMT and compares with consensus’ iron ore production estimate of roughly 350 MMT. The deviation of 20-30 MMT corresponds to c1.5% of the global seaborne iron ore trade, while a less meaningful 0.5% of total dry bulk volumes. However, when factoring in the beneficial distance effect of Brazilian iron ore export volumes, the news is clearly a negative for the dry bulk stocks.

On a more positive note, we find our dry bulk stocks under coverage attractively priced despite the recent rebound, as stocks fell abruptly from their recent peaks. The near-term sentiment should be further supported by the latest uptick in freight rates, with the next month FFA rising 11% in today’s trading, while next year rose 3% to USD22.0k/day.