China interested to partner with Vale

By Finance

China wants a shipping partnership with Vale, the Brazilian mining major. The Asian country is interested in moving iron ore from its giant vessels onto smaller ones.

Valemax, the mega vessels of the Brazilian company, are not allowed to dock at Chinese ports. The ban has been set due to their large size (Valemax have capacity of carrying over 400,000 tonnes of ore) and has foiled the attempts of the miner to compete with Rio Tinto and BHP Billiton (Australian based competitors) by reducing freight costs.

Owners of vessels in China have categorically set against Vale mega ships access. The main concerns have been that the Brazilian company could worsen a shipping glut and snatch share of the market. At a conference yesterday in Brazil, Li Jinzhang, the Chinese Ambassador, said:

"Our transport department has every interest in discussing and resolving this matter, including options such as setting up a partnership to transship the iron ore and thus work together to lower freight costs."

The process of transhipment includes transfer of the iron ore from the Valemax vessels onto boats that are allowed to anchor at Chinese ports. Currently, the Brazilian company is developing a center for transshipping operations in Malaysia, a working system has already been developed in the Philippines. Ambassador Li Jinzhang did not reveal any further details of the eventual partnership.

Currently, the transportation costs of Vale are $22 per tonne. If the mega vessels were allowed to take cargoes directly to China, the Brazilian company would save nearly $7 per tonne (over current cost). The producers of iron ore in Australia have generally had a 10-dollar a tonne freight advantage over Brazilian ore.

According to Li, Valemax vessels' problems to dock at ports of China were of a technical nature mainly. The Valemax were barred from Chinese ports in the begging of 2012 by the Ministry of Transport. The authorities cited safety concerns after the first mega ship docked at Dalian Port in the end of 2011 (December).