Vale In Shackles Over Unethical Issues; Investors Losing Interest Despite High Iron Ore Prices

Iron ore prices got flared again, with the benchmark Iron ore Fines 62% Fe (CME) futures climbing to the level of $93.63 (as on 8th April).

The factor which is supporting the iron ore prices in the global market is the supply constraints caused by the disruption in the supply chain of significant miners such as Rio Tinto, BHP, etc.

The production loss estimated by these significant miners was in line with the damage caused by the Cyclone Veronica in the Pilbara region, where these miners operate. As an effect of the cyclone, the Chinese ports marked a decline in the shipment from the Port Hedland, which caused a supply constraint in China’s domestic market; which in turn, supported the iron ore prices.

In the status quo, a shortfall in supply from the Australian miners, the Brazilian mammoth Vale was expected to take the advantage; however, the world’s largest iron ore producer also declared the production loss due to the suspension of its various operations after a dam collapse in Brazil which caused many casualties. As per the media sources, the incident left more than 220 people dead and more than 70 missing.

The collapse of the tailings dam at the Córrego do Feijão mine was the second such catastrophic incident which involved Vale since 2015; which in turn, brought unethical clouds over the company and the investors of the company have started offloading their interest from the company despite the court clearance of operating the suspended operations.

In the recent event, Union Investment, Germany’s third largest asset manager, offloaded all the bonds and shares it held in the mining group Vale after the recent dam collapse. The Church of England sold its stake in the company below Euro10 million, within days of the incident.

Apart from that, Sweden’s Ethics Council advised its clients to divest from the company as the council had lost confidence in the company. The council which also provided advice to several national pension funds lost its confidence after the unethical clouds hovered on Vale’s head.

The offloading activity among various stakeholders led Norway’s oil fund, which owns about 1.1% of Vale and is the world’s largest sovereign wealth fund, to start an investigation through its wing of Norwegian council of ethics.

As per the ESG (environmental, social and governance) head of the Union investment, Henrik Pontzen, all actively managed products managed by the company have excluded the Vale shares. The company reached the conclusion of casting out Vale after it discovered that the miner had structural flaws and it had not adopted significant and enough measures to prevent similar catastrophes.

Another major asset manager, Allianz Global Investors, reduced the exposure in the company after the dam collapse in 2015 and stopped being a shareholder of the company long before the recent dam collapse.

In a nutshell, the Brazilian giant lost significant value and reputation over the second dam collapse, which used the iron ore from the company and is in shackles despite a production loss of rival groups.


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