Aiming to boost business with fast-growing Asian customers, mainly thge Chinese, Brazil's iron ore miner Vale has ordered a dozen of the largest class of ore carriers from a Chinese shipbuilder for US$ 1.6 billion,.
Vale, the world's largest iron ore miner, expects the huge vessels to reduce shipping costs and make its ore more competitive with nearer Australian and Indian ore for the fast-growing Chinese steel industry, already the world's largest.
"Looking at the expansion projects we have and what other players are doing, we don't see the level of ore demand will be down for the next 2-3 years," said Eduardo Bartolomeo, Vale's executive director for logistics.
Vale said it ordered 12 very large ore carriers from Jiangsu Rongsheng Heavy Industries Co Ltd, each with a capacity of 400,000 deadweight tons. Delivery of the first is expected in early 2011 and the order is due to be completed by 2012.
The carrier program adds to Vale's previously announced global investment program of US$ 59 billion for 2008-12, as it aims to boost iron ore output by 50% to 450 million tons by 2013.
Vale has said it planned to ship more than 100 million tons of iron ore to China in 2008 under term contracts, a rise of 10% from 2007. China's crude steel output this year is forecast to rise about 10% to 550 million tons.
"So what we are doing is to find that option that gets iron ore closer. What we are doing is to stimulate steelmakers to build larger ships." Bartolomeo told a media briefing, adding that Vale would outsource the operation of the fleet.
Asian steel mills' negotiations with ore miners on annual term iron ore prices in 2008 stalled over the proposed inclusion of a freight premium sought by the Australian miners to reflect the higher shipping costs to China for Brazilian ore.
Bartolomeo said the large vessels would help Vale, which shed its sea transport operations in 2001, to address logistics shortcomings and better compete with global rivals such as BHP Billiton and Rio Tinto.
The Australian companies received higher price increases than Vale in annual iron ore supply contracts with Asian steel mills for 2008.
"We're trying to correct it – not the premium, but the freight rates," Bartolomeo said. "I'm not happy with the freight levels. I don't think they represent the actual cost of transportation."
Vale, formerly Companhia Vale do Rio Doce (CVRD), said the new vessels would be part of a Brazil-Asia shuttle service with 18 very large ore carriers able to haul a combined total of 7.1 million deadweight tons.
The fleet will be able to carry an estimated 30.2 million tons of iron ore per year from Brazil to Asia, equivalent to 31% of the company's shipments to China in 2007, according to Vale.