Brazil’s Vale made a successful wager in the 1960s to ship iron ore directly to Japan. But its attempt to do the same in China has run aground
Reuters in London 08 December 2011
Half a century ago, Brazilian miner Vale upended the global iron-ore market by building massive vessels to ship its ore to Japan. But its nascent effort to do so again with China has been anything but smooth sailing.
News this weekend that the Vale Beijing, the world’s largest iron-ore carrier, had cracked two of its ballast tanks after loading ore for its maiden voyage is the latest stumble in a bold, multibillion-dollar plan to bolster its trading power.
The mining giant’s plan to cut freight costs by ordering a fleet of 35 of the world’s biggest iron-ore carriers as it aims to tap demand in China, the world’s No1 importer of the raw material used to produce steel, has faced stiff opposition from China and now concerns about vessel safety.
“They have had several setbacks now in less than half a year - all the issues with regards to whether they will be allowed into China,” said George Lazaridis, head of research with Greek ship broker Intermodal. “They have not been able to compete on the main route they wanted (from) Brazil to China.”
China has yet to allow any of Vale’s giant ships to dock at its ports, forcing the world’s biggest iron-ore producer to send its vessels instead to Italy, Oman and other destinations.
It isn’t the first time Vale has taken a big bet on the high seas. According to Eliezer Batista, former president of Vale, the company in the 1960s helped build some of the then-biggest vessels in the world to make Vale competitive in Japan, which was then growing at China-like rates.
“We weren’t sure we could make these ships work, control them or even get them to stop when fully loaded,” Batista said in a 2008 interview. “We did, though, and they were crucial in making Vale a world player in the iron-ore markets.”
The company’s effort to do it again has been troubled.
For several months, China’s shipowners’ association has lobbied the government, local maritime authorities and port agents to block the vessels, known as Valemaxes, from entering China.
It has argued that in a market controlled by Vale and its rivals Rio Tinto and BHP Billiton, the Valemaxes would put Chinese buyers at the mercy of these suppliers.
Last week, an official with the National Development and Reform Commission (NDRC) planning agency said Chinese ports were not yet ready to receive the vessels, due to a few “small issues” in handling the world’s largest dry-bulk vessels.
“There is an accumulation of pressure on Vale at the moment with different factors all happening at once,” one shipping source said.
The fleet of 400,000-deadweight-tonne (dwt) megaships has been touted to be rolled out by the end of 2013. Brokers and analysts said Vale has also faced setbacks with having to classify some of its vessels at 380,000 dwt - meaning it will lose some of the fuel efficiency of the increased size.
The damaged Vale Beijing was moved from its berth in Brazil for repairs on Tuesday with no impact on iron-ore swaps prices.
“If this turns out to be very serious, everyone will have to go back to the drawing board and the NDRC and the port authorities in China will want a second look before they accept 35 of these ships which are designed for the Brazil-China trade,” a second shipping source said.
The head of a major iron-ore swaps brokerage in London called Vale’s move “misguided”: “They built these ships before having approval for them to go anywhere.”
A Vale official said in September it was in talks with Chinese and other ship owners to sell or lease its planned fleet of giant bulk carriers.
“You are talking about building a ship for one market and that one market straight away is dictating the ground rules on which it can trade there. The only thing Vale can do is sell these ships to a Chinese buyer,” the first shipping source said.
Macquarie Securities analyst Janet Lewis expects the next two Valemaxes to be delivered on time.
“After that, it appears Vale may be trying to delay as its iron-ore expansion is behind schedule and the Malaysian depot won’t open until 2014,” Lewis said. “I don’t think steelmakers are so much against the ships as the shipping companies.”
In recent months, the prospect of Vale’s megaships had raised fears of further rate pressure in dry bulk, already struggling with a glut of vessels ordered in good times. Capesizes at 170,000 dwt, among the biggest dry-freight carriers, faced a major earnings challenge from the Valemaxes.
There was now much uncertainty over much of the fleet designed to bridge some of Vale’s freight risk exposure, the second shipping source said.
The Vale Beijing was built by South Korean shipyard STX Offshore & Shipbuilding as the first of seven Valemax ships ordered by associate company STX Pan Ocean, which won a US$6 billion long-term contract to transport iron ore for Vale.
The remaining six ships were due to be delivered before the end of 2013.
Vale also directly ordered seven of the massive ore carriers from rival South Korean shipbuilder Daewoo Shipbuilding and Marine Engineering and 12 from China Rongsheng Heavy Industries at a total cost of about US$2.4 billion.
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Vale’s China gamble falters
Brazil’s Vale made a successful wager in the 1960s to ship iron ore directly to Japan. But its attempt to do the same in China has run aground
Reuters in London
08 December 2011
Half a century ago, Brazilian miner Vale upended the global iron-ore market by building massive vessels to ship its ore to Japan. But its nascent effort to do so again with China has been anything but smooth sailing.
News this weekend that the Vale Beijing, the world’s largest iron-ore carrier, had cracked two of its ballast tanks after loading ore for its maiden voyage is the latest stumble in a bold, multibillion-dollar plan to bolster its trading power.
The mining giant’s plan to cut freight costs by ordering a fleet of 35 of the world’s biggest iron-ore carriers as it aims to tap demand in China, the world’s No1 importer of the raw material used to produce steel, has faced stiff opposition from China and now concerns about vessel safety.
“They have had several setbacks now in less than half a year - all the issues with regards to whether they will be allowed into China,” said George Lazaridis, head of research with Greek ship broker Intermodal. “They have not been able to compete on the main route they wanted (from) Brazil to China.”
China has yet to allow any of Vale’s giant ships to dock at its ports, forcing the world’s biggest iron-ore producer to send its vessels instead to Italy, Oman and other destinations.
It isn’t the first time Vale has taken a big bet on the high seas. According to Eliezer Batista, former president of Vale, the company in the 1960s helped build some of the then-biggest vessels in the world to make Vale competitive in Japan, which was then growing at China-like rates.
“We weren’t sure we could make these ships work, control them or even get them to stop when fully loaded,” Batista said in a 2008 interview. “We did, though, and they were crucial in making Vale a world player in the iron-ore markets.”
The company’s effort to do it again has been troubled.
For several months, China’s shipowners’ association has lobbied the government, local maritime authorities and port agents to block the vessels, known as Valemaxes, from entering China.
It has argued that in a market controlled by Vale and its rivals Rio Tinto and BHP Billiton, the Valemaxes would put Chinese buyers at the mercy of these suppliers.
Last week, an official with the National Development and Reform Commission (NDRC) planning agency said Chinese ports were not yet ready to receive the vessels, due to a few “small issues” in handling the world’s largest dry-bulk vessels.
“There is an accumulation of pressure on Vale at the moment with different factors all happening at once,” one shipping source said.
The fleet of 400,000-deadweight-tonne (dwt) megaships has been touted to be rolled out by the end of 2013. Brokers and analysts said Vale has also faced setbacks with having to classify some of its vessels at 380,000 dwt - meaning it will lose some of the fuel efficiency of the increased size.
The damaged Vale Beijing was moved from its berth in Brazil for repairs on Tuesday with no impact on iron-ore swaps prices.
“If this turns out to be very serious, everyone will have to go back to the drawing board and the NDRC and the port authorities in China will want a second look before they accept 35 of these ships which are designed for the Brazil-China trade,” a second shipping source said.
The head of a major iron-ore swaps brokerage in London called Vale’s move “misguided”: “They built these ships before having approval for them to go anywhere.”
A Vale official said in September it was in talks with Chinese and other ship owners to sell or lease its planned fleet of giant bulk carriers.
“You are talking about building a ship for one market and that one market straight away is dictating the ground rules on which it can trade there. The only thing Vale can do is sell these ships to a Chinese buyer,” the first shipping source said.
Macquarie Securities analyst Janet Lewis expects the next two Valemaxes to be delivered on time.
“After that, it appears Vale may be trying to delay as its iron-ore expansion is behind schedule and the Malaysian depot won’t open until 2014,” Lewis said. “I don’t think steelmakers are so much against the ships as the shipping companies.”
In recent months, the prospect of Vale’s megaships had raised fears of further rate pressure in dry bulk, already struggling with a glut of vessels ordered in good times. Capesizes at 170,000 dwt, among the biggest dry-freight carriers, faced a major earnings challenge from the Valemaxes.
There was now much uncertainty over much of the fleet designed to bridge some of Vale’s freight risk exposure, the second shipping source said.
The Vale Beijing was built by South Korean shipyard STX Offshore & Shipbuilding as the first of seven Valemax ships ordered by associate company STX Pan Ocean, which won a US$6 billion long-term contract to transport iron ore for Vale.
The remaining six ships were due to be delivered before the end of 2013.
Vale also directly ordered seven of the massive ore carriers from rival South Korean shipbuilder Daewoo Shipbuilding and Marine Engineering and 12 from China Rongsheng Heavy Industries at a total cost of about US$2.4 billion.
Additional reporting by Keith Wallis
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