SHIPPING: Vale faces new blow in megaship gamble

By Jonathan Saul

LONDON (Reuters) – 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 No. 1 importer of the raw material used to produce steel, has faced stiff opposition from China and now new 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 the past several months, China’s shipowners’ association has been lobbying 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.

VESSELS ROLLING OUT

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.

Last month, China Rongsheng delivered the first of 12 Valemaxes at 380,000 deadweight tonnes.

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, then everyone will have to go back to the drawing board and the NDRC and the port authorities in China would want to have 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 added: “It was a real misguided effort by Vale because they built these ships before having approval for them to go anywhere.”

A Vale official had told Reuters 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 said she expected 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.”

FREIGHT MARKET PRESSURE

In recent months, the prospect of Vale’s megaships had raised fears of further rate pressure in dry bulk, which is 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.

“You now have a huge question mark over a big chunk of the fleet designed specifically to bridge some of Vale’s freight risk exposure,” the second shipping source said. “That will be viewed as positive for the capesize market.”

The megaships have been built by South Korean and Chinese shipyards, including China Rongsheng.

“It is too early to judge whether the accident would affect other VLOCs (very large ore carriers) in operation and being built, as the reasons behind the accident have not been clearly identified at this stage,” a China Rongsheng official said.

“We are closely following the issue, and we firmly state that quality and safety of our products are our top priorities.”

(Additional reporting by Silvia Antonioli in London, Randy Fabi in Singapore, Ruby Lian in Shanghai and Jeb Blount in Rio de Janeiro; Editing by Dale Hudson)

Source: http://www.reuters.com/article/2011/12/06/us-vale-megaship-idUSTRE7B52GN20111206

Advertisements

Leave a comment

Filed under Sem categoria

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s