Vale Brasil anchored in Rio de Janeiro, Brazil PHOTO FROM VALE.COM
SHANGHAI/SINGAPORE— Vale is readying an alternative iron ore distribution base in the Philippines as China has barred the world’s largest dry bulk ships from its ports, halting the Brazilian miner’s plan to send its giant vessels to its top market.
China’s transport ministry said on Tuesday its decision not to allow giant ships was in part a result of the severe downturn in the shipping industry that has hurt several leading domestic companies, as well as maritime safety issues.
Ships exceeding approved capacities were previously assessed on a case-by-case basis, but the ministry said in a statement on its website that giant dry bulk vessels and oil tankers were prohibited with immediate effect.
Vale is counting on a fleet of 35 giant ships called Valemaxes, each at 400,000 deadweight tons, to slash shipping costs to China to help it better compete with Australian rivals BHP Billiton and Rio Tinto.
“At the end of the day, they (China) want to support their own. They are not interested in whether Vale will be able to provide cheap imports in comparison to Australian imports,” said George Lazardis, analyst at Greek broker Intermodal. “They are interested in giving support to their shipowners, which are starting to become a significant force over the past couple of years, and to help that part of the industry grow.”
With access to China closed, Vale has been forced to build a transshipment hub in the Philippines to ensure its mega-ships, each costing around $110 million, remained employed.
The world’s largest dry bulk floating storage vessel, Ore Fabrica, owned by Vale, has docked in the Philippines’ Subic Bay Freeport, a spokeswoman for the port told Reuters. The 280,000-deadweight-ton vessel will serve as a platform to transfer iron ore from the so-called Valemaxes to smaller ships for transport to China and other Asian markets such as Japan and South Korea.
Previously a crude oil tanker, the ship was converted by a Chinese shipyard to a floating storage vessel to be based in Subic Bay Freeport, located in the Philippines’ main Luzon island, according to shipping data.
The 388,000-ton Berge Everest was the first and only Valemax allowed into China, docking at Dalian Port on December 28 to unload iron ore that has yet to be sold. Strong opposition from the China Shipowners Association has helped keep further ships from arriving at its domestic ports.
The group fears the fleet will give Vale a monopoly on both the shipping and iron ore markets at China’s expense.
“China is so dependent on imported raw materials that it has a structural incentive to destroy freight prices as much as possible,” said Macquarie commodity analyst Graeme Train. “And Vale’s strategy with the VLOCs [Very Large Ore Carriers] was a direct threat to that because Vale would take the lower freight cost themselves, when really what China wants to do is to ensure that there’s oversupply in the freight market and to take advantage of that for itself.”—Reuters