SÃ O PAULO—Brazilian mining giant Vale SA is proposing to scrap its dividends to save cash this year, the latest indication of how the deep and prolonged slump in raw material prices is bearing down on the industry.

Vale-—which is world's top producer of iron ore and nickel—said that its executive board has proposed a "zero" dividend this year to its supervisory board, which would then be subject to shareholder approval at the company's annual meeting in April.

"As the year progresses and we have more clarity on the market scenario, the board of directors may decide on the distribution of some remuneration to shareholders, provided that there is sufficient cash flow generation," the company said.

The move comes as slackening demand for commodities, notably from China, amid ample supply has undermined prices for a wide range of raw materials from iron ore, copper, and nickel to oil, natural gas, and coal. The tough trading environment has squeezed mining and oil industry profit margins, prompting drastic cutbacks in spending as well the suspension or reduction of cash payments to investors.

Anglo American PLC has suspended its dividend while other mining groups reduced their payouts last year, such as Phoenix-based Freeport-McMoRan Inc., Glencore PLC, Cliffs Natural Resources Inc., Peabody Energy Corp., and Vale itself.

The Brazilian group, which reduced the second tranche of its 2015 dividend by half to $0.10 a share, had said as recently as last month that might pay "a small dividend" this year.

The slump has put pressure on mining companies' finances too.

Earlier this month, Moody's Investors Service placed Vale's debt on review for possible downgrade, citing slack demand for prices of base metals, iron ore and other commodities because of slowing growth in China. Moody's currently rates Vale at Baa 3, the lowest of investment grades.

Vale also faces costs associated with last year's dam break at Samarco Mineracao SA, a local joint venture that it owns with BHP Billiton Ltd., which left 17 people dead.

Suspending dividends frees up mining companies to spend available cash paying down debt, closing unprofitable operations and investing to make existing facilities more efficient. Mining companies increasingly will need any available cash in the coming years to make payments on debt picked up during the boom years, analysts say.

Write to Rogerio Jelmayer at rogerio.jelmayer@wsj.com

 

(END) Dow Jones Newswires

January 29, 2016 05:45 ET (10:45 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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