Vale SA (ADR) (VALE), Diamond Offshore Drilling Inc (DO): What This Highly Bearish Fund Is Betting On?

During the first quarter of 2017, Horseman initiated a stake in Brazilian iron ore mining company Vale SA (ADR) (NYSE:VALE) and the holding has been its largest in terms of value for the last three quarters. At the end of September, Horseman held 3.12 million shares of Vale SA (ADR) (NYSE:VALE) worth $31.40 million. Since the beginning of the year, Vale SA (ADR) (NYSE:VALE)’s stock has surged by nearly 35% as the company benefited from higher iron ore prices.

In January, Russell Clark published a market commentary titled “The End of the Bear Market for Iron Ore”, in which he highlighted that iron ore was an attractive investment as China has started to reduce the production of iron ore, while the demand for the metal remains high. Clark also pointed out that while China has started to produce less steel, it was importing it in larger quantities and the growth of steel production in India also helps drive demand for iron ore higher.

In May, Clark reiterated this position, saying that the Chinese steel production remains high, but the mining of iron ore in the country was starting to decline. Given that the Chinese iron ore was of a poor quality, the government is likely to phase out its iron ore industry as it clamps down on pollution. Therefore, it is more likely to increase imports of ore, which puts companies like Vale SA (ADR) (NYSE:VALE) in a good spot. In addition, India is ramping up the steel production and plans to reach 300 million tons by 2030, compared to 100 million tons today.

Disclosure: none