Wednesday, June 1, 2011

Vale's (VALE) Short and Long-Term Outlook Seems Strong

The short and long-term prospects of Vale SA (NYSE:VALE) look solid, although there is the overhand and uncertainty surrounding the interference of the socialist government of Brazil and what it may do in any given circumstance they disapprove of, like the direction former CEO Roger Agnelli was taking the company, which resulted in the Brazilian government pressuring the company to replace him with its man, Murilo Ferreira, who is now CEO of the resources company.

Other than the risk of the Brazilian government, the sector itself looks solid in the near and long term, with the company looking to double production capacity over the five or six years.

The other major risk to the company is its currency, which the company is heavily exposed to because about 65 percent of costs are in reais.

In the very short term iron ore prices are expected to remain unchanged, although they are still sitting near record highs.

Vale Chief Executive Officer Murilo Ferreira said, "The price will remain practically unchanged for the third quarter."

Concerning credit tightening in China, Ferreira added, "I don't believe in a slowdown in China, but rather a movement in the economic cycle. I expect a strong second semester for China."

Analysts also see strong Chinese demand and supply challenges offering support to the company.

Goldman Sachs (NYSE:GS) raised their price target on Vale (VALE) to $44.00. They have a “buy” rating on the company.

Vale closed Tuesday at $32.26, gaining $0.38, or 1.19 percent.

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