Vale working to soothe relations with China
By Richard Fu |
May 25, 2012, Friday
|
Print Edition
Print Edition
BRAZILIAN mining giant Vale SA is inviting Chinese ship owners to join an initiative to develop super vessels as it seeks to soothe relations amid an ongoing conflict that has repercussions for industries ranging from ports and shipping to shipbuilding and steel.
Vale, the world's largest iron ore exporter, is building a fleet of 35 so-called "very larger ore carriers" (VLOCs) to save on costs of shipping ore to China. The VLOC is the world's biggest dry bulk vessel, with a cargo capacity of up to 400,000 tons.
The Chinese Shipowners' Association has spurned Vale's initiative, citing the potential impact on loss-making domestic shipping companies and safety problems. Lobbied by the association, the Ministry of Transport issued a ruling in January that bans dry bulk ships of more than 350,000 deadweight tons from docking at Chinese ports.
The ban was a major setback for Vale, which insists its plan is all about fuel efficiency and its competitive edge with Australian miners BHP Billiton and Rio Tinto in supplying China with raw materials. Vale's ore has to travel three times the distance as ore from Australia.
Shipping not core business
Struggling to seek China's permission to allow its VLOCs to call at Chinese ports, Vale insists that the company has no interest in controlling the shipping business.
"Vale's strategy is not about owning vessels," Gurinder Singh, Vale director for shipping and distribution, told the TradeWinds Shipping China conference in Shanghai. "We are a user of shipping capacity. Shipping is not our core business. Mining and iron ore are. Vale is looking to charter its vessels for long-term periods at prices that reflect the cost of investment."
Vale has reportedly stopped hiring ships from China's leading shipping company COSCO in retaliation for the Chinese ban, but Singh denied the allegation. He said Chinese ship owners have actually been increasing their share of Vale's exports to China, from 19 percent in 2009 to 31 percent last year.
Vale is trying to create monopolies in iron ore and shipping with its VLOC strategy and is working against the interests of China's ports, steel and shipping industries, Zhang Shouguo, secretary-general of the China Shipowners' Association, said in remarks published on the trade group's website earlier this month.
Zhang also urged Vale to downgrade the capacity of its vessels to less than 350,000 deadweight tons.
Vale appears to be sticking with its mega ship plan as it continues to take delivery of the VLOCs - which go under the name Valemax - from shipbuilders in China and South Korea.
On Sunday, China's top private shipbuilder, Rongsheng Heavy Industries Group Holdings, delivered its third VLOC, the Vale Dalian, to the Brazilian company, and a day later, christened another two of the vessels for Oman Shipping Co, which will also be chartered to Vale.
Ban forced hub in Philippines
Chen Qiang, chief executive of Rongsheng, said bigger ships make great sense in terms of reducing carbon emissions and Vale's mega ship plan hasn't been affected by the ban. There were earlier reports that Vale had declined to take deliveries from Rongsheng to protest against the Chinese ban, but Rongsheng has denied this.
But the Chinese ban did force Vale to open up a trans-shipment hub in the Philippines in February to feed deliveries to China, its largest market. Vale plans to open a second such facility in Asia, possibly in South Korea, Claudio Alves, Vale's global marketing director, said on Monday in the Jiangsu Province port of Nantong, where he attended the christening of the two Valemaxes built for Oman Shipping.
Some shipping industry executives say Vale's mega-ship plan makes sense, but there might be better solutions.
"Personally I think it is a fair play for Vale in terms of price and carbon footprint," said Wang Chunlin, executive director of Hong Kong-based Pacific Basin Shipping. "But I doubt whether Vale could be competitive in today's dry bulk market, which is a fully competitive market and where freights are so low."
'Misallocation of resources'
He said there are not many examples where cargo interests are successfully transformed into ship owning interests. He cited the example of Sinotrans Shipping, noting that many joint ventures between the shipping firm and clients like Baosteel and Shenhua Group are actually in a "very difficult situation" today.
He said Vale should form more partnerships, otherwise the shipping foray could be a "misallocation of resources." Vale should consider signing contracts of "affreightment" and forming joint ventures with Chinese shipping firms, he added.
"If you want to have bacon, it's not necessary for you to raise pigs yourselves," he noted wryly.
Vale's Singh told the recent conference that ship owners are welcome to participate in the VLOC initiative, but if they choose not to, then the company will proceed on its own.
Opponents argue that Vale's entry into the shipping industry could worsen the sector's current overcapacity.
Singh said it's wrong to infer that Vale is responsible for overcapacity in the dry bulk market, pointing to "reckless ordering" in the industry as the main culprit for depressed rates.
The Valemax delivered on Sunday is of 380,000 deadweight tons, though VLOCs technically have a capacity of up to 400,000 tons. The lesser capacity is believed to be an effort by the company to ease concerns in the Chinese shipping industry and among government officials.
The first and only Valemax to dock on the Chinese mainland arrived in Dalian last December, triggering protests from Chinese ship owners that eventually led to the ban.
Vale, the world's largest iron ore exporter, is building a fleet of 35 so-called "very larger ore carriers" (VLOCs) to save on costs of shipping ore to China. The VLOC is the world's biggest dry bulk vessel, with a cargo capacity of up to 400,000 tons.
The Chinese Shipowners' Association has spurned Vale's initiative, citing the potential impact on loss-making domestic shipping companies and safety problems. Lobbied by the association, the Ministry of Transport issued a ruling in January that bans dry bulk ships of more than 350,000 deadweight tons from docking at Chinese ports.
The ban was a major setback for Vale, which insists its plan is all about fuel efficiency and its competitive edge with Australian miners BHP Billiton and Rio Tinto in supplying China with raw materials. Vale's ore has to travel three times the distance as ore from Australia.
Shipping not core business
Struggling to seek China's permission to allow its VLOCs to call at Chinese ports, Vale insists that the company has no interest in controlling the shipping business.
"Vale's strategy is not about owning vessels," Gurinder Singh, Vale director for shipping and distribution, told the TradeWinds Shipping China conference in Shanghai. "We are a user of shipping capacity. Shipping is not our core business. Mining and iron ore are. Vale is looking to charter its vessels for long-term periods at prices that reflect the cost of investment."
Vale has reportedly stopped hiring ships from China's leading shipping company COSCO in retaliation for the Chinese ban, but Singh denied the allegation. He said Chinese ship owners have actually been increasing their share of Vale's exports to China, from 19 percent in 2009 to 31 percent last year.
Vale is trying to create monopolies in iron ore and shipping with its VLOC strategy and is working against the interests of China's ports, steel and shipping industries, Zhang Shouguo, secretary-general of the China Shipowners' Association, said in remarks published on the trade group's website earlier this month.
Zhang also urged Vale to downgrade the capacity of its vessels to less than 350,000 deadweight tons.
Vale appears to be sticking with its mega ship plan as it continues to take delivery of the VLOCs - which go under the name Valemax - from shipbuilders in China and South Korea.
On Sunday, China's top private shipbuilder, Rongsheng Heavy Industries Group Holdings, delivered its third VLOC, the Vale Dalian, to the Brazilian company, and a day later, christened another two of the vessels for Oman Shipping Co, which will also be chartered to Vale.
Ban forced hub in Philippines
Chen Qiang, chief executive of Rongsheng, said bigger ships make great sense in terms of reducing carbon emissions and Vale's mega ship plan hasn't been affected by the ban. There were earlier reports that Vale had declined to take deliveries from Rongsheng to protest against the Chinese ban, but Rongsheng has denied this.
But the Chinese ban did force Vale to open up a trans-shipment hub in the Philippines in February to feed deliveries to China, its largest market. Vale plans to open a second such facility in Asia, possibly in South Korea, Claudio Alves, Vale's global marketing director, said on Monday in the Jiangsu Province port of Nantong, where he attended the christening of the two Valemaxes built for Oman Shipping.
Some shipping industry executives say Vale's mega-ship plan makes sense, but there might be better solutions.
"Personally I think it is a fair play for Vale in terms of price and carbon footprint," said Wang Chunlin, executive director of Hong Kong-based Pacific Basin Shipping. "But I doubt whether Vale could be competitive in today's dry bulk market, which is a fully competitive market and where freights are so low."
'Misallocation of resources'
He said there are not many examples where cargo interests are successfully transformed into ship owning interests. He cited the example of Sinotrans Shipping, noting that many joint ventures between the shipping firm and clients like Baosteel and Shenhua Group are actually in a "very difficult situation" today.
He said Vale should form more partnerships, otherwise the shipping foray could be a "misallocation of resources." Vale should consider signing contracts of "affreightment" and forming joint ventures with Chinese shipping firms, he added.
"If you want to have bacon, it's not necessary for you to raise pigs yourselves," he noted wryly.
Vale's Singh told the recent conference that ship owners are welcome to participate in the VLOC initiative, but if they choose not to, then the company will proceed on its own.
Opponents argue that Vale's entry into the shipping industry could worsen the sector's current overcapacity.
Singh said it's wrong to infer that Vale is responsible for overcapacity in the dry bulk market, pointing to "reckless ordering" in the industry as the main culprit for depressed rates.
The Valemax delivered on Sunday is of 380,000 deadweight tons, though VLOCs technically have a capacity of up to 400,000 tons. The lesser capacity is believed to be an effort by the company to ease concerns in the Chinese shipping industry and among government officials.
The first and only Valemax to dock on the Chinese mainland arrived in Dalian last December, triggering protests from Chinese ship owners that eventually led to the ban.
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