Vale orders $1.6 bln ships for China iron ore supply

August 4, 2008

August 4th (Reuters) – Brazilian iron ore miner Vale (VALE5.SA: Quote, Profile, Research)(RIO.N: Quote, Profile, Research) has ordered a dozen of the largest class of ore carriers from a Chinese shipbuilder for $1.6 billion, aiming to boost business with fast-growing Asian customers.

Vale, the world’s largest iron ore miner, expects the huge vessels to reduce shipping costs and make its ore more competitive with nearer Australian and Indian ore for the fast-growing Chinese steel industry, already the world’s largest.

 

“Looking at the expansion projects we have and (what) other players are doing, we don’t see the level (of ore demand) will be down for the next 2-3 years,” Eduardo Bartolomeo, Vale’s executive director for logistics, told reporters.

 

Vale said it ordered 12 very large ore carriers from Jiangsu Rongsheng Heavy Industries Co Ltd, each with a capacity of 400,000 deadweight tonnes. Delivery of the first is expected in early 2011 and the order is due to be completed by 2012.

 

The carrier programme adds to Vale’s previously announced global investment programme of $59 billion for 2008-12, as it aims to boost iron ore output by 50 percent to 450 million tonnes by 2013.

 

Vale has said it planned to ship more than 100 million tonnes of iron ore to China in 2008 under term contracts, a rise of 10 percent from 2007.

 

China’s crude steel output this year is forecast to rise about 10 percent to 550 million tonnes.

“So what we are doing is to find that option that gets iron ore closer. What we are doing is to stimulate steelmakers to build larger ships,” Bartolomeo told a media briefing, adding that Vale would outsource the operation of the fleet.

 

Asian steel mills’ negotiations with ore miners on annual term iron ore prices in 2008 stalled over the proposed inclusion of a freight premium sought by the Australian miners to reflect the higher shipping costs to China for Brazilian ore.

 

Bartolomeo said the large vessels would help Vale, which shed its sea transport operations in 2001, to address logistics shortcomings and better compete with global rivals such as BHP Billiton (BHP.AX: Quote, Profile, Research)(BLT.L: Quote, Profile, Research) and Rio Tinto (RIO.AX: Quote, Profile, Research)(RIO.L: Quote, Profile, Research).

 

The Australian companies received higher price increases than Vale in annual iron ore supply contracts with Asian steel mills for 2008.

 

“We’re trying to correct it — not the premium, but the freight rates,” Bartolomeo said. “I’m not happy with the freight levels. I don’t think they represent the actual cost of transportation.”

 

The Baltic Exchange chief sea freight index .BADI for global raw materials trade soared to a record 11,793 points in May, although it has since eased to 8,280 on Friday.

 

Vale, formerly Companhia Vale do Rio Doce (CVRD), said the new vessels would be part of a Brazil-Asia shuttle service with 18 very large ore carriers able to haul a combined total of 7.1 million deadweight tonnes.

 

The fleet will be able to carry an estimated 30.2 million tonnes of iron ore per year from Brazil to Asia, equivalent to 31 percent of the company’s shipments to China in 2007, Vale said.

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