The world’s largest iron ore producer, Brazil’s Vale posted a Q3 net loss due to a sharp depreciation of the Brazilian real and low iron ore prices.

The miner announced a net loss of $1.44 billion in the quarter amid the lowest iron ore prices since 2010.

The Rio de Janeiro-based company said net sales fell 27% to $9.1 billion in the quarter, representing a much worse forecast than analysts anticipated.

Commodity slump

Iron ore prices dropped to below $80 in the Chinese market in mid-October hitting $79.80 on 24 October.

The world’s largest producer of iron ore mined a record amount of the steel-making ingredient during the quarter, but Vale’s slight rise in production was not enough to offset the plunge in price.

The rise was also below rivals Rio and BHP who have successfully increased production and cut costs in recent years.

‘Killing the supercycle’

Glencore’s Ivan Glasenberg recently blamed the commodity glut on Rio Tinto and BHP, arguing their strategy is completely wrong.
Glasenberg said his two biggest competitors were fuelling a 25% increase in output that was ‘killing the supercycle’.

While Vale produced a record amount of iron ore in the period, the turmoil in currency and commodity markets overshadowed any production gains.

“Because the functional currency of Vale is the Brazilian real, every time our total debt when expressed in the functional currency increases in value, we record a loss,” CFO Luciano Siani said in a video posted on the company’s website. “We acknowledge the challenging times.”

Reducing investment

The mining giant added it is reducing its capital expenditures and it is likely to invest $1 billion to $2 billion less than its initial forecast for this year of $14.8 billion.

The loss of $1.44 billion followed a net profit of $3.5 billion in the same period last year, drop that can be explained by significantly lower iron-ore prices and shipments and rising costs.

The price of the steel-making raw material has fallen by more than half since a 2011 peak as the “big three” —Vale, Rio Tinto and BHP Billiton— continue to boost supply.

Earnings on net revenue

The impact on Vale is massive, with iron ore usually accounting for about 85% of the company’s profits.

The miner reported EBITDA, of $3 billion on net revenue of $9.1 billion.

“We believe a dividend cut in 2015 looks increasingly likely, with costs and capex unlikely to be cut sufficiently to offset the impact of lower iron ore prices,” analysts at Barclays wrote in a note.