China, the world’s largest iron-ore consumer, tightened rules for ports that handle very large ore ships and oil tankers to ensure safety standards, restricting Vale SA (VALE5)’s plans to serve its main customer with giant carriers.
Harbors will need to get permission from China’s ministry of transport to handle vessels bigger than their designated capacity, according to a notice on the department’s website today. Ports and ship operators have generally dealt with such cases individually, it said.
The ministry will take a more active role in enforcing rules drawn up in 2006 because bigger ships present “hidden dangers,” it said in today’s notice. China will increase checks on large ships because of a history of safety problems at ports around the country, according to the statement. Ports need to draw up designated routes for larger ships and emergency plans, according to earlier rules.
Shipping lines and commodity companies are introducing bigger vessels to help meet Chinese demand and to counter rising fuel costs. Rio de Janeiro-based Vale, the world’s largest iron- ore producer, is spending at least $8.1 billion buying 19 very large ore carriers and leasing another 16 in long-term contracts, as it seeks lower freight costs from Brazil to China. Vale has said it may sell some of its large ships.
Vale’s plan has spurred opposition from Chinese shipowners who say it will worsen overcapacity and cause industry wide losses.
Reducing Freight Costs
Vale’s strategy of reducing freight cost volatility won’t change if the company sells its giant ships, because it will lease them back under long-term contracts, Barclays Plc analysts led by Leonardo Correa in Sao Paulo said in a note today.
“Vale has been facing severe problems to dock its very large ore carriers at Chinese ports,” the analysts wrote.
China, which buys about 45 percent of the iron ore sold by the Brazilian company, is excluding the so-called Valemax vessels, the world’s biggest carriers of dry-bulk commodities, because they lack port-entry permits, Jose Carlos Martins, Vale’s head of ferrous and strategy, said in December.
The five Valemax ships, which are able to carry about 400,000 metric tons of iron ore, haven’t reached Chinese ports since they began operating in May. The Berge Everest, another large vessel used by Vale with capacity to carry 388,000 metric tons, called at the Chinese port of Dalian Dec. 28. Vale is setting up plans to bypass the exclusion by establishing a so- called transshipment vessel in the Philippines.
A Vale official in Rio de Janeiro, who declined to be named citing corporate policy, said the company wouldn’t comment.
Vale rose 2.6 percent to 42.69 reais in Sao Paulo today, its highest closing since Sept. 21.