(Adds analyst comment, background throughout)
By Stephen Eisenhammer
RIO DE JANEIRO, July 24 Brazil's Vale SA
produced record amounts of iron ore in its latest
second quarter, rising to the task of battling Australian rivals
for market share, but weaker performance at other divisions
fanned some concern ahead of results next week.
Iron ore production rose 12.6 percent to 79.45 million
tonnes from a year earlier, Vale said on Thursday, as better
weather conditions combined with ramp ups at its two main mine
sites in Brazil. The Brazilian company is the world's largest
producer of the mineral.
Vale is expected to post an annual decline in second-quarter
net income of more than 40 percent when it reports on July 31,
according to an average of analyst forecasts compiled by
Giants Vale, Rio Tinto Plc and BHP Billiton Plc
are all increasing iron ore capacity in a move expected
to squeeze higher-cost producers out of the market. But with
iron ore prices .IO62-CNI=SI languishing near 22-month lows
during the period, analysts had been looking to Vale's nickel
division to pick up some of the slack.
Some of those analysts were subsequently disappointed as
nickel production fell 5.2 percent to 61,700 tonnes due to
maintenance at the Sudbury mine in Canada. Its VNC project on
the French Pacific island of New Caledonia also suspended
operations after an acid spill in May.
Vale had stressed the success of its nickel division in the
previous quarter saying it was just 200 tonnes off being the
world's biggest producer of the ingredient used to make steel
rust-resistant. The price of nickel has risen by about a
fifth since April due to a ban on nickel ore exports from
"The production of base metals in particular stood well
below our initial forecasts, confirming our view that Vale is
still struggling to diversify away from iron ore," Paul Gait, an
analyst at S. Bernstein Research, wrote in a note to clients.
IMPRESSIVE IRON ORE
The record result was due to improved weather conditions and
the ramping up of production at the company's flagship Carajas
mine in Brazil's Amazon as well as at its mines in the southern
highland state of Minas Gerais.
Vale's preferred shares, the company's most traded class of
stock, were up 1.6 percent in Sao Paulo, on track for their
biggest gain in a week.
Vale's coal output fell 7.1 percent to 2.21 million tonnes
from 2.38 million tonnes a year earlier.
(Editing by Peter Galloway, Bernard Orr)