VALE3 seeks gains after 7 consecutive falls, despite the fall in iron ore; action still has potential?

The shares of OK (VOUCH3) try to remain high this Tuesday (7), despite the retreat in the prices of the iron ore at China.

The steel raw material retreated in the Asian markets, following a correction movement in recent days, after a rally driven by the prospects of reopening the Chinese economy in the face of the easing of the Covid Zero policy which paralyzed the activities of the country.

The most traded iron ore futures on the Dalian Exchange ended day trading down 0.7% at 840.50 yuan, or $123.86 a tonne.

On the Singapore Exchange, the commodity’s March contract fell as much as 2.4% to US$ 120.30 a tonne.

traders are more restrained in optimism, this time evaluating the increase in port inventories in China, adding to weaker prospects for demand.

Despite this, Vale’s shares tested high today, rising 0.26% around 4:10 pm, at R$ 88.07. This Tuesday, the mining and steel shows mixed performance, with most assets moving towards a positive trend.

According to Lucas Bohn, variable income specialist and partner at water summerVale’s share movement on the day reflects only a technical correction.

If the company is firm high in this trading session, Vale will break the trend of seven consecutive sessions in the red. Since the downward trend established at the end of last month, the mining company has fallen by around 10% on the Stock Exchange.

Is the rally over?

The market begins to assess the correction of iron ore and stocks exposed to the steel ingredient. Acqua Vero’s specialist understands that the projected scenario for China, of an “extremely heated” economy, should not consolidate.

“Vale should continue to sustain itself at high levels, according to the BTG Pactual. However, we have to be a little cautious at this moment due to the fear of the recession and, even now, with the new fears that China will not reheat as expected”, says Bohn.

A Green Assetone of the largest asset managers in Brazil, recently started a position shorts in companies linked to metallic commodities.

“After a significant appreciation of global and local assets of metallic commodities in this movement of Chinese reopening, and considering the asymmetry now proposed by prices and scenarios, we started a short position in companies of the sector”, he commented, in a monthly letter of January.

Some market analysts are also more skeptical about the pace of recovery in the world’s second-largest economy.

Gabriela Joubert, chief analyst at Inter Research, reinforces that Chinese steel production is still weak. According to the specialist, it is necessary to see “more forceful” data to confirm whether the reopening process will give the turn that the market is waiting for.

Joubert also mentions the crisis in the real estate sector, which has limited the demand for steel products (and, consequently, the demand for iron ore).

O USB BB remains pessimistic about mining and steel companies. In the bank’s assessment, the recent iron ore rally happened more on speculation about the recovery of the economy in China. Analysts point out that demand fundamentals are still weak.

Already the Genial Investimentos argues that, although the Chinese reopening is a major driver for mining companies in the short term, demand will be lower than the projected consensus.

Like UBS BB, Genial believes that there is a certain level of speculation in the market, both in the price of iron ore and in the high volatility of shares in the sector.

“These movements tend to be very euphoric for the market, which most of the time, misses the hand in intensity”, he comments. The brokerage firm has a “hold” recommendation and a target price of BRL 105 for Vale’s shares.

Guide Investimentos is more optimistic. Mateus Haag, analyst at Investment Guidehighlights that the signs that the Chinese government has been giving in favor of the end of the Covid Zero policy stand out from the restrictions still present.

“We know that, as soon as this crisis is resolved, we should see a return to normal activities in China”, he says. For Haag, Vale’s stock still has room to rise further and should “remain firm” in the long term.