World No. 2 iron ore supplier Vale SA delivered a bigger-than-expected increase in production last quarter in a result that may undermine prices of the key steelmaking ingredient.

The Brazilian mining giant is accelerating production, posting its best December in five years, after investing in its prized Amazonian operations and improving performance at its oldest mines in the country’s southeast. Production was up from both a year ago and the previous three months, with full-year output ahead of guidance.

The bumper haul may generate some headwinds for the iron ore market, which has been fairly resilient to a slowdown in China, the biggest buyer. Prices have rallied by more than a third since mid-August, leading some analysts to forecast a decline in 2024. Still, top producer Rio Tinto Group sees increased stimulus fueling a gradual recovery in China.

Vale produced 89.4 million metric tons last quarter, easily beating the 83 million-ton average estimate among analysts tracked by Bloomberg. In a statement Monday, the Rio de Janeiro-based firm reiterated its 2024 guidance.

While production was strong, shipments came in slightly below estimates and premiums for high-grade products shrank. Vale shares fell as much as 2.6% in New York Tuesday as renewed concerns over the real estate crisis in China pushed down iron ore prices.

Vale is also a major nickel producer and a significant supplier of copper. It saw nickel output slip 5.3% from a year ago, while copper production jumped about 50%. A slump in nickel prices is stress-testing producers worldwide, raising the prospect of investment delays and production curtailments, with miners including BHP Group and First Quantum Minerals Ltd. halting some operations.

In an e-mailed response, Vale said it continues to believe in long-term nickel fundamentals driven by rising energy transition demand and moving ahead with projects. Its realized price last quarter was 7% higher than futures prices.

The sharp drop in nickel prices may prompt some closing of high-cost shafts, with the business unit close to breakeven in the fourth quarter and in the red at current prices, BI senior analyst Grant Sporre wrote in a research note.

Vale, which is set to report earnings on Feb. 22, is enduring leadership tensions amid pressure from Brazil’s government to make changes as the board prepares to decide whether to retain Eduardo Bartolomeo as chief executive officer or seek a replacement.

Mining.com