Why Vale (VALE) Is Down Today

NEW YORK (TheStreet) -- Vale (VALE) was falling 2.2% to $12.53 Tuesday on weak demand for iron ore in China.

Price of iron ore with 62% content delivered to Tianjin are down 8.3% to $105 a dry ton. The price is the lowest since October 2012 and the biggest drop in four years. The price drop caused concern for many iron producers.

In a note to investors J.P. Morgan analysts Rodolfo Angele, Mandeep Singh Manihani, and Lucas Ferreira warned that ore prices could test September 2012 lows of about $87 a ton. The analysts maintain a positive outlook for Vale, however, maintaining the miner's "buy" rating.

"Vale would still be breakeven on 2014E FCF even at an average iron ore price of $72/t, which should provide comfort on the balance sheet side," the analysts wrote. "Our DCF analysis estimates an implied iron ore price of real $75/t until perpetuity assuming spot copper and nickel prices, which, in our view, is an unlikely scenario."

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TheStreet Ratings team rates VALE SA as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate VALE SA (VALE) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its expanding profit margins and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity."

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