Brazilian Iron Ore Giant Gets the Short End of the Stick While China Runs Around in Circles

BEIJING (Dow Jones)–China’s Ministry of Transport Tuesday said that it has tightened control over a new breed of super-sized iron ore freighters stopping at Chinese ports, requiring a more stringent review of ports wanting to accept such ships, in a move apparently aimed at Brazilian iron ore miner Vale SA (Vale).

In a statement on its website, the ministry said that effective Jan. 20 port operators no longer enjoy discretion in allowing dry bulk and oil carriers that exceed existing deadweight limits to berth at their terminals.

“The safety outlook regarding oversized ships is not good, and the risks from their stopping at ports is on the higher side,” the ministry said.

The ministry urged port operators to abide by a March 2006 law requiring a stringent review process and the ministry’s permission to allow oversized ships to berth at Chinese ports. The ministry’s latest stance appears to trump an October 2006 law that allowed ports to host such ships at their discretion as many as three times a year.

The ministry said State Council’s safety commission backed the latest measure.

The first of Vale’s fleet of such ships, called “very large ore carriers” or VLOCs, temporarily docked at the port of Dalian late last month.

The surprise docking came after the China Shipowners’ Association had expressed opposition to the presence of such ships, calling them “safety and pollution risks.”

An official at the association’s domestic affairs department declined comment Tuesday, but cited existing Chinese statutes that limit the entry of such ships.

The ministry did not completely prohibit VLOCs from docking in Chinese ports.

Analysts say Chinese shipowners may view VLOCs as a commercial threat, but shipbuilders want contracts to build such ships.

“Within China, there is a dilemma,” Jay Hsiao, a Braemar Seascope broker, said.

VLOCs, with capacities of 300,000-400,000 deadweight tons, are about twice the size of Capesizes, their next largest brethren, at around 180,000 deadweight tons.

Vale commissioned VLOCs to help it compete in the Chinese market against BHP Billiton Ltd. (BHP) and Rio Tinto Plc (RIO), which are located much closer to China.

-By Chuin-Wei Yap, Dow Jones Newswires; Zhoudong Shangguan in Beijing contributed to this article.