The steel sector and related ETF broke down after Vale SA (NYSE: VALE) suspended dividends following a dam breach that left 60 dead and 292 missing in Brazil.
The VanEck Vectors Steel ETF (NYSEArca: SLX), the lone steel sector-specific ETF, declined 3.0% on Monday.
VALE shares plunged 15.3% Monday after the Brazilian miner suspended dividends, share buybacks and executive bonuses, following Friday’s fatal dam breach, the company’s worst disaster since 2015.
Mayor Avimar de Melo of Brumadinho, which was partly leveled by the spill, is seeking millions in damages and accused Vale’s “incompetence” for the catastrophe, Bloomberg reports.
“Given that this is the second dam burst linked to Vale, we would expect more stringent remediation requirements and tougher penalties,” Macquarie Capital Ltd. analysts including Grant Sporre wrote on Monday.
“The market’s always going to react, but the mine that’s involved is only about 7% of Vale’s output and so not massively material at this stage,” Vivenne Lloyd, senior analyst at Macquarie said, according to the Wall Street Journal. “The probability of more stringent inspections and potential shutdown of other mines using similar methods has elevated since the disaster.”
Related: Steel ETF Steady Amid Sector Downgrade
Credit Suisse analysts also mirrored the sentiment, pointing out that this is Vale’s second disaster associated with its dams over the last three years, which could lead to a more stringent regulatory response.
Andrew Cosgrove, Metals and Mining Analyst, Bloomberg Intelligence, argued that Vale could have to bear $7 billion in damages after accounting for the updated dividend suspension, and overall damages could exceed that of 2015 if the death toll tops 300.
Three court orders already froze $3 billion in vale assets to pay for the damages while Brazil’s environmental agency, Ibama, fined the company $66.3 million for pollution and other regulatory violations, TheStreet reports.
While Vale said the waste behind the dam is made up of mostly sand and non-toxic material, a previous United Nations report asserts the waste contains high levels of toxic heavy metals.
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