VALE - Iron!

VALE SA - Iron/Nickel/Copper Miner
VALE price at date of writing this: $16.68 December 15, 2020

Why should you buy VALE?

$24.50 price target from JP Morgan
https://thefly.com/landingPageNews.php?id=3212481&headline=VALE-Vale-price-target-raised-to--from--at-JPMorgan (December 14, 2020)

Chinese economy is booming
https://www.japantimes.co.jp/news/2020/12/15/business/economy-business/china-industrial-output/ (December 15, 2020)
https://finance.yahoo.com/news/china-economic-recovery-strengthens-fueled-022423671.html (December 15, 2020)

China iron prices record high
https://www.cnbc.com/2020/12/11/chinas-iron-ore-prices-spike-10percent-to-a-record-high-on-supply-concerns.html (December 11, 2020)

VALE is the second largest seller of ore to China (Australia is the first)
https://auto.economictimes.indiatimes.com/news/auto-components/chinese-steel-mills-chase-iron-ore-contracts-with-brazils-vale/65899489 (September 21, 2018)
https://gcaptain.com/vale-and-chinese-port-sign-651-million-deal-for-iron-ore-storage/ (November 13, 2020)
https://www.investopedia.com/articles/investing/030215/how-iron-ore-market-works-supply-market-share.asp
"Though China was the No. 3 iron ore producer, it was also the top importer, buying up 63% of the global trade. Japan was the second-largest importer, purchasing 8.3% of global trade, followed by South Korea at 5.1%"

China is currently escalating conflict with Australia
https://www.cnbc.com/2020/12/16/as-china-australia-trade-tensions-rise-beijing-needs-iron-ore-alternative.html
(December 16, 2020)
"Beijing imports 60% of its iron ore from Australia"
VALE will capture market share - Chinese firms will make more purchases from VALE Brazil rather than Australian firms due to the uncertainty
https://www.abc.net.au/news/2020-12-14/global-times-reports-australian-coal-exports-blocked-by-china/12983336 (December 14, 2020)
"China's The Global Times appears to confirm a ban on Australian coal imports amid perilous trade tensions"
Iron ore ban has not happened yet (and realistically will not happen) however, the increased tensions will incentivize Chinese buyers to buy Brazilian VALE ore to decrease their risk

Tesla is in talks with VALE for nickel production for batteries = extra bullish hype
https://seekingalpha.com/article/4394688-vale-and-tesla-nickel-picture (December 14, 2020)
https://auto.economictimes.indiatimes.com/news/industry/miner-vale-in-talks-with-tesla-ev-sector-for-canada-nickel-executive/78459216 (October 3, 2020)
Asked whether Vale and Tesla have held discussions, Travers said: "Yes, absolutely."

All industrial metals are soaring:
https://www.mining.com/base-metals-get-supercharged-thanks-to-china-rebound/ (December 15, 2020)
VALE is locking in sales at this $150+ iron price
VALE is cutting operating costs
https://www.mining.com/vale-adopts-new-global-working-model/ (December 15, 2020)
Iron ore bull market
https://www.mining.com/iron-ore-price-goes-parabolic-after-cyclone-warning/ (December 10, 2020)

VALE Samarco Mine resuming operations = bullish
https://news.yahoo.com/brazils-samarco-restart-mining-five-000615409.html (December 11, 2020)
Production operations should begin in earnest in the second half of December

VALE’s estimates are based upon iron being $96 a ton +/-10%
http://www.vale.com/en/investors/services-investor/pages/default.aspx (download their investor kit and read the Interim Financial Statements June 30, 2020, page 24)
https://www.forbes.com/sites/timtreadgold/2020/12/15/iron-ore-rockets-to-160-a-ton-and-china-cries-foul/?sh=2c9cef638afc (December 15, 2020)
(Outline of the article if you don’t have Forbes: https://outline.com/Kzu3dy)
VALE was very profitable at $96 iron - it is now at $150+! FANTASTIC margins!
Even if iron has a reasonable pull back, they will still be *extremely* profitable

Macro conditions:
Every country is printing money to try to get out of this SARS recession - more money chasing the same commodities = prices of commodities soar
Every country will invest in infrastructure to create jobs and kickstart their economy (think of after the great depression)

Why I think VALE will benefit the most:
China normally buys their Iron from Australia (60% of the iron they buy)
However, in the last several weeks, the conflict between Australia and China has rapidly escalated - to where China has put on a ban on coal imports from Australia. It is fairly unlikely that China will outright ban Australian Iron (out of necessity); however, these increased tensions will incentivize Chinese Iron buyers to source their ore from non-Australian sources as much as they can
VALE being the #2 seller will capture Australian iron marketshare
Chinese iron buyers / steel producers want to increase their production to the MAX right now - the price of steel has never been higher! Since the price of steel is so high, they are incentivized to increase production and buy as much iron as possible - boost their inventories of iron, just in case there are supply disruptions / waitlists (no Chinese steel mill wants to have to halt production for a month while they wait to receive more iron) Increased purchases of iron at these record high prices is fantastic for VALE

Full disclosure: my position is VALE $16 Calls 4/16/2021