Nickel trades on the LME; iron ore does not. The underlying value of Vale (aka CVRD) is the stability of its iron ore earnings. That is what makes it a great company. The question I ask is will they succeed in taking the volatility out of the other markets as they further consolidate them. Companies are worth the present discounted value of all future (estimated) cash flows. I would argue that daily LME-style price corrections result in people putting lower value on the earnings and probably do not help the producers in the long run.
On the whole, Vale is going to start to structure long-term pricing in non-iron ore commodities. I’m not sure how, but I have strong faith in this management team. The fact that they were not willing to leave marketing rights with Glencore proves that we should have faith in them. Glencore makes money off the volatility in the market place (they are traders), and Vale makes money in the stability of the market place (they are producers). It’s never good to have your off-take controlled by a trader who likes market disruptions (and will use them for short-term gains at your long-term loss).
http://www.iht.com/articles/ap/2008/04/25/business/LA-FIN-Earns-Brazil-Vale.php
http://www.reuters.com/article/companyNews/idUSN2434631420080424
