Vale, the world's biggest iron ore producer, is likely to rise in trading today after announcing a record second-quarter profit, up 22 per cent, beating analysts' forecasts.

Net income climbed to $5.01 billion, or $1.02 a share, from $4.09 billion, or 85c, a year earlier, Rio de Janeiro-based Vale said yesterday.

The results topped the average estimate of 91c a share from eight analysts surveyed by Bloomberg.

Revenue from iron ore surged 72 per cent after the company won a sixth straight annual price increase in supply contracts. Sales of the raw material used to make steel helped shield Vale from the steepest nickel price drop in two decades.

Sales of nickel, Vale's second-biggest source of revenue, plunged 41 per cent.

"The market considers this a good result," said Rodrigo Ferraz, a Brascan analyst in Rio de Janeiro. Investors reacted "positively" in after-market trading.

Vale's American depositary receipts gained 1.9 per cent to $27.20 last night in after-hours trading in New York.

In regular Sao Paulo trading, Vale rose 1.9 per cent to 36.71 reais. The stock has declined 28 per cent this year, compared with a 9.9 per cent drop in Brazil's benchmark Bovespa index.

"The market is in a buying mood after this result," said Daniel Gorayeb, an analyst at Spinelli in Sao Paulo. "The company managed to take advantage of market demands by producing more of its higher-value products and focused more on what was of interest, which conveys a positive image."

Vale, led by chief executive officer Roger Agnelli, is spending $59 billion in the five years to 2012 to increase iron ore capacity by 40 per cent and double nickel and copper production.

Vale raised about $12.1 billion in a July share sale, the biggest ever by a Brazilian company, to fund expansion and acquisitions.

Vale this year negotiated contract price increases for its iron ore of at least 65 per cent. The gain helped drive the value of Vale's sales of the raw material, which accounted for more than half of revenue, to $6.12 billion. Nickel, which made up 17 per cent of sales, plunged to $1.87 billion.

Nickel prices fell 26 per cent in the quarter, the most since 1988.

Vale said profitability at its nickel operations was high because the company was a low-cost producer. "In the medium term, the combination of a reduced level of stainless-steel stockpiles and a drop in nickel inventories creates a favourable environment for the strong recovery of prices of the metal," Vale said.

Agnelli is seeking to expand in coal and copper as quarterly profit growth slowed from a 69 per cent average in the past four years. In May, Agnelli told business leaders in Rio de Janeiro that "if Vale doesn't grow, it will be swallowed".

Net revenue rose to $10.6 billion from $8.69 billion in the second quarter of 2007. Gross revenue, which includes sales tax, totalled $10.9 billion.

Vale was expected to post sales of $11.8 billion. – The Australian