Vale’s Strategy is About Access to Ships, Not Ownership

Dow Jones
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December 7, 2012

Vale Rio de Janeiro arriving at Rotterdam on January 8, 2012.

LONDON–Brazilian miner Vale SA (VALE) said Thursday the company’s shipping strategy isn’t about owning a fleet of ships but rather making sure the ships are in operation in order to give Vale the opportunity to tap the Chinese market more effectively.

“The strategy is not about ownership, it’s about the ship,” said Jose Carlos Martins, Executive Officer responsible for Ferrous Minerals Operations and Marketing at Vale. “For us we’re indifferent about owning the ships or contracting them,” he added.

Vale has spent around $2 billion on a fleet of huge ships to carry its iron ore from Brazil to China. It has 18 of those ships in operation and plans to have a total of 35 ships in operation by the end of next year, Mr. Martins said.

The ships are able to carry about 400,000 dead-weight tons of iron ore compared to more traditional iron ore vessels that can carry 200,000 dead-weight tons of iron ore. The Valemax ships, as they are called, are aimed at helping Vale generate greater liquidity for its product in Asia, the world’s largest iron ore consuming region.

“We will continue to develop a fleet of ships to service us because we believe this is necessary in respect to the dislocation of the market to Asia and in response” the need for greater liquidity of our products there, Mr. Martins told journalists at the company’s London Investor Day.

Vale’s plans to deliver iron ore via the Valemax fleet, however, were dealt a blow after Chinese regulators refused to allow them to dock in China due to safety concerns. The inability to deliver iron ore to China, the world’s largest iron-ore consuming nation, via the Valemax ships has added an extra $2 to $3 per ton in costs compared to an economy of $6/ton if it were able to ship iron ore directly to China on the ships.

Vale expects Chinese authorities will grant Vale the necessary licenses to dock the massive ships sometime next year and is in talks to sell the ships to third parties, particularly Chinese buyers, Mr. Martins said. Those talks, however, are contingent upon Vale securing the licenses to dock, he added.

Vale has an iron-ore distribution center in Malaysia and hopes to be able to secure the permission to build one in China, hopefully at the same time it secures permission to dock its Valemax ships in China once again, Mr. Martins said. Vale has identified six ports located in northern and southern China that could accommodate such a distribution center, he said.

-By Alex MacDonald. (c) 2012 Dow Jones & Company, Inc.

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