HONG KONG – Rio Tinto has signed a 20-year contract with Japan’s Mitsui O.S.K. Lines Ltd (MOL) to carry iron ore from Australia to China, as the world’s No 3 miner takes advantage of a shipping market downturn to secure low freight rates.
Big mining companies are looking for security in freight rates following significant fluctuations in shipping prices in the past 10 years, industry experts and analysts said.
“We are seeing a lot of the big commodity producers and charterers showing a lot more interest in taking a long-term cover. That would suggest that they think that freight rates are going to rise in the medium to longer-term,” said Tim Huxley, CEO of Hong Kong-based Wah Kwong Shipping Holdings Ltd.
Huxley said 20-year deals were rare, with not many shippers having the capability to strike such long-term contracts.
Under the agreement with Rio, MOL Cape (Singapore) Pte Ltd, a unit of Japan’s second-largest shipping firm, will set aside several vessels of 200,000-250,000 deadweight tonne (dwt) to carry iron ore from western Australia to Chinese ports with a maximum transport volume of 8.5 million tonnes, MOL said in a statement.
Details of the freight rates were not disclosed, but MOL said the deal will contribute to stable earnings. Rio on Thursday reported its first-ever full-year loss, of $3 billion, and remained upbeat on iron ore.
Dry bulk carriers, which ship commodities — from agricultural products to iron ore and coal — have been hit hard by a supply glut and weak demand amid slower growth in China and an uncertain global economy.
The Baltic Exchange’s main sea freight index, which fell about 60 percent last year, eased 0.4 percent to 748 points on Thursday.
Daily rates charged by capesize vessels, which typically transport 150,000 tonnes of cargo, were at $6,802 on Thursday. These are loss-making levels and way below a peak of more than $230,000 in 2008.
State-owned China COSCO Holdings Co Ltd , which operates the world’s largest bulk cargo fleet, has warned of a second straight year of losses for 2012 and faces the risk of delisting of its Shanghai shares.
“This year is looking pretty grim,” said Huxley. “For most bulk carrier owners, this is a year of survival.”
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