China’s Shipping Companies Lobby Government to Foil Vale’s Iron Ore Fleet

China’s largest shipping companies are lobbying the government to foil Vale SA (VALE3)’s plan to build a $2.3 billion fleet of the world’s biggest iron ore carriers that

will haul the steelmaking material to the nation.
Vale, the world’s largest iron-ore producer, should engage the shipping companies to run the fleet, Zhang Shouguo, executive vice chairman of the China Shipowners Association, said in a telephone interview. Rio de Janeiro-based Vale is building 19 of the 400,000-ton vessels and will control another 16 under long-term contracts, aiming to stabilize freight costs and iron ore prices.
“Let the shipping industry do the transport thing,” said Zhang, who was a former deputy director of the water transport division of China’s Ministry of Transport. “Vale is seeking to control the freight market as it has done with iron ore prices.”
The Baltic Dry Index, a measure of commodity transportation costs, slid for a 14th day yesterday in London because of a glut of iron ore carriers competing to transport the steelmaking ingredient. Iron ore prices have more than tripled in the past three years and reached a record $191.90 a ton in February, according to a price index compiled by The Steel Index Ltd.
Vale Brasil, the first in the fleet, will “undoubtedly” go to China whenever Vale needs to send iron ore to its biggest customer, Chief Executive Officer Murilo Ferreira said July 19. The vessel was diverted from its original destination in China to Italy on its maiden voyage because of draft restrictions at the port and a request from a European iron ore customer.
Vale fell 0.7 percent, the most in two weeks, to 45.85 reais yesterday in Sao Paulo trading. The stock has fallen 5.5 percent this year.
The company is spending $8.1 billion on the fleet including $5.8 billion for a 25-year transportation contract with STX Pan Ocean Co., South Korea’s biggest bulk-shipping company, for seven more. Vale also needs to pay fuel costs for the ships it owns.
No Approval
Chinese regulators haven’t approved any of its ports to increase accommodation capability to more than 300,000 dead- weight tons for dry bulk carriers because of safety and environmental concerns, Zhang said.
“Many shipping companies may incur losses because of the monopoly on the route,” he said. “We’ve made it clear to the government that we object to the major cargo owners building their own fleets.”
The association, which represents 85 percent of China’s total shipping capacity, is trying to seek cooperative shipping contracts with Vale, Zhang said, without elaborating. Should the need arise, it may also ask the government to investigate whether Vale breached the Chinese regulations against market manipulation or monopoly, he said.
A Vale official in Rio de Janeiro, declining to be named according to corporate policies, said the company won’t comment.
Valemax Fleet
The global fleet of bulk carriers will expand 13 percent this year, according to Clarkson Research Services Ltd., a unit of the world’s largest shipbroker. That compares with the 4 percent growth it forecasts for shipping commodities by sea.
The so-called Valemax vessels, which are triple the length of a football field, are scheduled to join the fleet by the end of 2013, Vale said this month. The second ship, Vale China, will start operating within two months, Ferreira said.
Chinese ports of Dalian, Dongjiakou and Majishan have the capacity to receive the carriers that are able to haul 400,000 ton cargoes, Vale said June 21. China’s Ministry of Transport didn’t answer questions sent by Bloomberg via fax.
The cost of shipping iron ore from Tubarao in Brazil to China’s Qingdao port, the main destination for dry bulk shipments, has fallen 82 percent to $19.454 a ton from a record of $108.746 on June 4, 2008.
Iron-ore Prices
Vale, Rio Tinto Group and BHP Billiton Ltd. (BHP), the world’s three-largest iron ore producers, abandoned a 40-year custom of annual pricing last year in favor of quarterly agreements as spot iron ore prices rose. Steelmakers had called for regulators to investigate an “oligopoly” among the iron ore exporters that inflated prices.
Vale wants to increase sales in Asia as it competes with BHP and Rio Tinto for clients in China, Japan and other countries in the region. BHP and Rio Tinto ship most of their ore from ports in Australia. Brazil, where Vale produces the bulk of its supplies, is three times further from Asian markets than Australia.
Source: Bloomberg