23 October 2018

Vale steers its giant ore vessels with local tie-up

Brazilian mining giant Vale S.A. has sought to step up shipments to China as the country alone consumed half of the company’s iron ore output last year, helping offset weak demand elsewhere that dented the firm’s earnings overall.

To meet its goals, Vale has ordered or rented a number of super-sized vessels. It secured a total of 35 of the so-called Vale Max vessels, each having a capacity of 400,000 metric tons of dry bulk cargo, to ply the long route to China. The move came as rivals Rio Tinto, BHP Billiton, Fortescue and others also upped the ante as they inked deals to supply rich ores from much closer Australian mines.

With the gigantic ships, Vale aimed to save up to 30 percent in transport costs compared with vessels half the tonnage. But a notice from China’s Ministry of Transport (MoT) threatened to sink Vale’s plan at one point.

In the notice gazetted last year, the ministry ordered harbor operators to strictly implement review and approval proceedings for berthing of super bulk vessels. It also stated that it had never approved the construction of any berths or waterways for ships with a displacement of 400,000 tons or above – despite the fact that several ports had begun work to serve larger vessels.

Some analysts interpreted the notice as a ban on Vale’s ships from entering the Chinese waters, likely the result of relentless lobbying by domestic shipping firms. There were fears that Vale, with its giant vessels, could deal a crippling blow to the Chinese shipping industry that had already been struggling to stay afloat.

But Vale refused to give up easily. It docked vessels in Malaysia and the Philippines and then transshipped the cargo to China. It has also lost no time in seeking alliances with some Chinese state-owned shipping companies to work around the overall problem.

In a breakthrough at end-October, the company entered into a deal with Qingdao-based Shandong Shipping Corp., under which the latter pledged to buy four of Vale’s super ships and lease them back to the Brazilian firm. In return, Vale would award a fat iron ore shipping contract worth US$500 million, as the Economic Observer noted in a report.

The deal is certainly understandable, but why did the choice fall on little-known Shandong Shipping? The reason is that Qingdao port in which Shandong Shipping holds a controlling stake has several finished berths geared for the tonnage class of that of Vale Maxes.

The timing is appropriate as China’s state-owned energy heavyweights China National Offshore Oil Corp. and China National Petroleum Corp. have recently won the bid to develop a massive offshore oilfield in Brazil. The Chinese government is expected to respond with a welcome gesture for Brazilian companies.

Docking guidelines drafted by the MoT last month indeed signaled a shift in the regulator’s stance: extra large ships would be allowed to berth at ports with compatible tonnage capacity and operators would be given full rein, according to the Economic Information Daily.

This is also a real blessing for Rio Tinto and BHP Billiton as the pair also operates some of the world’s largest freighters.

Domestic shippers will certainly be taken aback by the news. However, a deputy secretary-general at China Ports and Harbors Association has been quoted as saying that the use of larger-sized vessels is irreversible and that no one should bet against the trend.

– Contact the writer at [email protected]


EJ Insight writer

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