SHIPPING | Vale’s giant ships ‘to drive rates to 1977 lows’

Lloyd’s List | 2010.10.22

Planned 400,000 dwt Chinamax bulk carriers to push earnings down to $10,000-$12,000 per day, says Zodiac Maritime

CAPESIZE owners will have to find a way to survive on rates as low as $10,000-$12,000 a day within five years as a result of Brazilian mining giant Vale’s bold shipping expansion, said Ian Shirreff, Shanghai-based chief executive of Zodiac Maritime.

Mr Shirreff said the Rio de Janeiro-based company’s decision to construct a fleet of Chinamax ore carriers of 400,000 dwt would “have the biggest effect on the market that we’ve seen in 30 years”.

“They are planning 80-100 vessels to drive the market down so low that the differential between Brazil-China freight and Australia-China is minimal,” Reuters reported that he told delegates at the CoalTrans conference in Amsterdam this week. “Make no mistake, this will happen,” he added.

He forecast that capesize rates would drop to the levels of 1977 when they hovered between $10,000 and $12,000 per day.

Gurinder Singh, Vale’s director of freight and international projects for shipping and ports, told delegates in Amsterdam that the company’s decision to participate fully in shipping iron ore to Asia was already working.

“It’s all about iron ore, it’s all about China,” Reuters reported that he said at the conference. “Since 2009, Vale has tried to be part of the shipping market moving from selling free on board at ports to CFR (delivered), and freight and iron ore has decoupled so freight is now a much lower proportion of the delivered cost.”

Plans to build up to 20 Chinamax vessels in China and South Korea, with a further 16 being built by other shipowners at Asian yards, are set to transform the market in the next five years, producing what Vale claims will be a “permanent cut in the costs of Atlantic-Pacific dry bulk shipping”.

The acquisition of 22 second hand bulkers and very large crude carriers in the immediate aftermath of the global financial crisis has already helped achieve Vale’s objectives of keeping freight rates below 20% of the cost of iron ore.

“Our customers and Vale need low and stable freight, because when the Australia-Brazil differential is $40-$60 nobody will buy ore from us, but when the freight is low the differential is automatically very little,” he said.

It is not the first time that Vale has moved to reshape shipping markets, he added, pointing to the emergence of the capesize market in the 1970s and 1980s when Japanese ore buyers were persuaded to build deepwater ports .

Japanese owner NYK Line joined third-party shipowners that will be dedicated to Vale’s cargo flows when it received the 300,000 dwt Ore Amazonas from the NACKS shipyard in China on Saturday.

It will join a fleet of ore giants that has already reached 25 following a flurry of acquisitions during the downturn of early 2009. Vale’s ore fleet already includes 12 second hand bulkers and 10 converted VLCCs..

The first of Vale’s 400,000 tonne Chinamax ore carriers will be delivered next June. Each ship will be able to transport as much as 1.8m tonnes of iron ore a year between Brazil and China.

China will have three ports capable of handling the ships as early as next year and another seven are being built, said Mr Singh.