Brazilian miner Vale SA (VALE, VALE5.BR) is confident in its strategy of chartering large iron ore ships despite current prohibitions on their docking in Chinese ports and a serious accident with a vessel in Brazil in recent days, a Vale director said Wednesday.
“We believe we will get permission to berth these vessels at Chinese ports,” Vale’s iron ore and strategies executive director Jose Carlos Martins told reporters at a Vale Day event in London, adding that ports in China are in the process of “adapting” to accept larger vessels. The event was broadcast on the Internet.
He said it’s important for the company to continue to use large 400,000-ton vessels as they’re more cost-effective than smaller vessels.
Vale has chartered a fleet totaling 16 ships that will work solely for Vale for 25 years, as part of its long-term shipping strategy “to reach Asia on a competitive basis” and to have vessels available when it needs. During the commodities boom in 2008, before the global financial crisis hit, Vale couldn’t sell 70 million tons of product because it couldn’t find enough vessels, Martins said.
“The Australians are 10 days from China, and we are 45 days away, we need to keep things moving, and to lower volatility in the market,” Martins said.
Vale’s strategy is to charter the vessels rather than own them, Martins said.
“We don’t want to be shipping operators or change the nature of our business,” he said.
So far, Vale’s larger chartered vessels haven’t been allowed to dock at Chinese ports, and China is Vale’s biggest customer for iron ore. According to Martins this is due to “technical, not political problems.”
Some of the vessels Vale will charter are currently being built in China, he noted.
However, “the timing for the ships to arrive and the ports be ready is not the same,” Martins noted. “We can manage this situation until the Chinese ports are ready.”
Vale is building a port in Malaysia that could handle nearly all of its ships, creating a hub delivering ore to the rest of Asia, Martins said. Asia bought 62% of Vale’s iron ore in the third quarter, while 20% went to Europe, Martins said.
Meanwhile, this weekend’s accident in northeast Brazil involving Vale Beijing, one of Vale’s large chartered iron-ore carriers, was a “very unusual and serious” incident which is still being investigated, Martins said.
“This was a brand new ship on its first voyage,” said Martins said. “We don’t know exactly what happened. After loading 260,000 tons, the vessel developed a crack even though it has capacity for 400,000 tons. Something very unusual happened.”
Late on Tuesday, the vessel, owned and operated by South Korea’s STX Pan Ocean Co. (028670.SE), was towed away from pier 1 at Vale’s Ponta da Madeira iron-ore terminal. It was anchored about six kilometers (3.7 miles) away, for experts to assess the damage, according to Brazil’s navy.
As a result, Vale lost shipments of 800,000 tons of iron ore at the major export terminal, Martins said. “We’re trying to reach [sales of] 300 million tons for the year.”
Vale has six other major vessels already in operation and is confident of their structural integrity, Martins said.
“We hope the company [STX] has a very good explanation,” he said. “It’s important for our strategy to find out what happened.” He said it was too early say whether Vale would review its contract with the shipbuilder.
-By Diana Kinch, Dow Jones Newswires