Bloomberg News

Vale Iron Ore Ships Face ‘Elevated’ Cancellation Risk, HSBC Says

February 07, 2012

Feb. 6 (Bloomberg) -- There’s an “elevated” risk that Vale SA, the Brazilian mining company amassing a fleet of 35 of the world’s largest iron ore carriers, may cancel some of the contracts, HSBC Shipping Services Ltd. said.

The vessels, each able to hold as much as 400,000 metric tons of ore, are excluded from China by port-entry requirements for very large vessels that were tightened last week. The rules apply to dry-bulk vessels larger than 350,000 deadweight tons, the China Shipowners Association said. Vale, the world’s largest ore producer, says it’s operating six vessels above that size, of which it owns four and charters two.

Vale remained committed to the construction of the remaining 29 ships, the Rio de Janeiro-based company said last week, as part of plans to spend $8.1 billion on new ships and take greater control over freight costs from Brazil to China, its fastest-growing market in Asia.

The shipbuilding program “might look like an expensive mistake, but it is potentially even worse than that if they are banned from entering China,” HSBC said in the report. “Six have already entered service and some of the remainder must now be at elevated risk of cancellation.”

None of the existing Vale-owned ore carriers have been permitted to call at Chinese ports. The Berge Everest, owned by BW Group Ltd. and under a long-term contract to Vale, called at Dalian in December. Chinese shipowners opposed the vessels’ introduction on concern it would worsen a capacity glut and plunging rates. China is the biggest global user of iron ore, a steelmaking ingredient.

Cargo Transfers

The very large ore carriers are too big to unload anywhere outside China except Sohar in Oman, Rotterdam and Taranto, Italy, and will be under-utilized without working routes to China, according to the report. Vale begins a trans-shipment hub in Philippine’s Subic Bay this month using a floating transfer station to shift ore from the carriers to smaller vessels for delivery to ports elsewhere, the company said in a statement last week.

A spokesman from Singapore-based Vale Shipping Holding Pte, the company’s shipping division, declined to comment. The spokesman asked not be identified in line with company policy.

--Editors: John Deane, Sharon Lindores

To contact the reporter on this story: Michelle Wiese Bockmann in London at mwiesebockma@bloomberg.net

To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net -0- Feb/06/2012 10:59 GMT


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