Vale says giant ore ships to win China approval in months
Brazil's Vale, the world's No. 2 mining company, expects to win permission "within months" to unload its big, new iron-ore ships at Chinese ports, a move that will help ensure efficient delivery of raw materials to China's growing economy, a senior executive told Reuters.
The ships, known as very large ore carriers, or "Valemax" class vessels, are needed to meet soaring demand for iron ore, the main ingredient in steel, Tito Martins, Vale's CFO, said in an interview at the Reuters Global Mining and Metals Summit.
China's economy expanded by $2-trillion in the last decade as growth averaged about 11%, he said. In the next decade, he predicted, it will expand by $4-trillion, even if growth slows by more than a third.
The huge gains of the past decade, Martins added, mean that even a slower pace of growth translates into huge demand. "Even if they grow at 7%, taking into account the size of the gross domestic production today, this growth in the next five to 10 years will be much bigger than before," he said.
Vale is the world's largest iron-ore producer and supplies more than a quarter of the world's approximately one-billion tons a year of sea-borne iron-ore exports.
To supply better the raw materials necessary for China's growth, Vale has bet on the new class of larger, more-efficient ships, which use less fuel per tonne carried.
Bigger than three soccer or American football fields, the Valemaxes are some of the largest ships afloat. They can carry enough iron ore to make steel for 3-1/2 Golden Gate bridges.
But China's government has been reluctant to grant the ships access to the country's ports.
Chinese ship-owners consider the Valemaxes a "Trojan Horse" whose foreign ownership and huge volumes will undermine the country's control of imports. Many are hurting after shipping rates .BADI plunged by more than half to about $900 a tonne since December. The first such carrier suffered a hull crack on its maiden voyage last year, also raising concerns the giant ships are unsafe.
Vale has said it needs the ships to compete with Australian ore producers such as BHP Billiton and Rio Tinto, which are closer to China and pay about half the transport fees to move their product to the world's largest ore market as Brazilian producers do.
"The big vessels are here to stay, this is a technical thing and we are just waiting for the ports to be adapted to receive our ships," Martins said.
"It's going to happen soon."
The first of the as much as 400 000-deadweight-tonne Valemaxes began operating late last year. Vale hopes to build 35 by the end of 2013, at a cost of about $4.2-billion.
While Vale operates several of the vessels itself, most are operated by third parties under long-term transport contracts. The company is in talks to sell even those ships it operates.
"We are in the mining business, not the shipping business," Martins said.
So far, only one Valemax has been granted permission to unload at a Chinese port. Since the December visit of the Berge Everest to the port of Dalian, all ships of more than 300 000 deadweight tonnes have been banned from Chinese ports.
Even with slower annual growth, Martins said, economic expansion is penetrating into the western reaches of China and the government is committed to the steel-intensive business of building new housing.
He expects China to build 8 million new "social" housing units in 2012, about the same as in 2011. Over the next several years, China will need to build 70-million housing units.
"A slowdown in China doesn't necessarily mean a recession," Martins said, adding that the steel business has been growing at rates faster than the overall economy.
Iron ore prices are likely to remain above $120 a ton in the next several years, he said, because demand remains strong and at prices below that, Chinese producers of low-quality ore begin to lose money.
"Any time it falls to $120 a ton or below, it bounces back," he said. "The $100 to $120 a ton level is a level where many marginal producers start having difficulty."
Ore with 62% iron content rose for a sixth day in seven on Wednesday, gaining 0.4% to $147.70 a ton, its highest in more than five months.
A similar level for nickel, for which Vale expects to become the world's largest producer this year, is $16 000 a metric ton. Below that, Chinese nickel-pig-iron producers begin losing money, he said.
Nickel for delivery in three months fell for a fifth day in six on Wednesday, slipping 1.2% to $17 575 a ton in London.
"We are confident we will not see prices [fall] to levels we saw 10 years ago," Martins said.
The ships, known as very large ore carriers, or "Valemax" class vessels, are needed to meet soaring demand for iron ore, the main ingredient in steel, Tito Martins, Vale's CFO, said in an interview at the Reuters Global Mining and Metals Summit.
China's economy expanded by $2-trillion in the last decade as growth averaged about 11%, he said. In the next decade, he predicted, it will expand by $4-trillion, even if growth slows by more than a third.
The huge gains of the past decade, Martins added, mean that even a slower pace of growth translates into huge demand. "Even if they grow at 7%, taking into account the size of the gross domestic production today, this growth in the next five to 10 years will be much bigger than before," he said.
Vale is the world's largest iron-ore producer and supplies more than a quarter of the world's approximately one-billion tons a year of sea-borne iron-ore exports.
To supply better the raw materials necessary for China's growth, Vale has bet on the new class of larger, more-efficient ships, which use less fuel per tonne carried.
Bigger than three soccer or American football fields, the Valemaxes are some of the largest ships afloat. They can carry enough iron ore to make steel for 3-1/2 Golden Gate bridges.
But China's government has been reluctant to grant the ships access to the country's ports.
Chinese ship-owners consider the Valemaxes a "Trojan Horse" whose foreign ownership and huge volumes will undermine the country's control of imports. Many are hurting after shipping rates .BADI plunged by more than half to about $900 a tonne since December. The first such carrier suffered a hull crack on its maiden voyage last year, also raising concerns the giant ships are unsafe.
Vale has said it needs the ships to compete with Australian ore producers such as BHP Billiton and Rio Tinto, which are closer to China and pay about half the transport fees to move their product to the world's largest ore market as Brazilian producers do.
"The big vessels are here to stay, this is a technical thing and we are just waiting for the ports to be adapted to receive our ships," Martins said.
"It's going to happen soon."
The first of the as much as 400 000-deadweight-tonne Valemaxes began operating late last year. Vale hopes to build 35 by the end of 2013, at a cost of about $4.2-billion.
While Vale operates several of the vessels itself, most are operated by third parties under long-term transport contracts. The company is in talks to sell even those ships it operates.
"We are in the mining business, not the shipping business," Martins said.
So far, only one Valemax has been granted permission to unload at a Chinese port. Since the December visit of the Berge Everest to the port of Dalian, all ships of more than 300 000 deadweight tonnes have been banned from Chinese ports.
Even with slower annual growth, Martins said, economic expansion is penetrating into the western reaches of China and the government is committed to the steel-intensive business of building new housing.
He expects China to build 8 million new "social" housing units in 2012, about the same as in 2011. Over the next several years, China will need to build 70-million housing units.
"A slowdown in China doesn't necessarily mean a recession," Martins said, adding that the steel business has been growing at rates faster than the overall economy.
Iron ore prices are likely to remain above $120 a ton in the next several years, he said, because demand remains strong and at prices below that, Chinese producers of low-quality ore begin to lose money.
"Any time it falls to $120 a ton or below, it bounces back," he said. "The $100 to $120 a ton level is a level where many marginal producers start having difficulty."
Ore with 62% iron content rose for a sixth day in seven on Wednesday, gaining 0.4% to $147.70 a ton, its highest in more than five months.
A similar level for nickel, for which Vale expects to become the world's largest producer this year, is $16 000 a metric ton. Below that, Chinese nickel-pig-iron producers begin losing money, he said.
Nickel for delivery in three months fell for a fifth day in six on Wednesday, slipping 1.2% to $17 575 a ton in London.
"We are confident we will not see prices [fall] to levels we saw 10 years ago," Martins said.