ASSESSMENTS

China: Transshipment Proposal Could Bolster Vale

Jun 5, 2014 | 08:56 GMT

China: Transshipment Proposal Could Bolster Vale
A man speaks on a walkie talkie near Valemax ship Rio de Janeiro at the harbor of Rotterdam on January 10, 2012.

(LEX VAN LIESHOUT/AFP/Getty Images)

Summary

At a recent conference in Brasilia, Chinese Ambassador to Brazil Li Jinzhang relayed the Chinese Ministry of Transport's interest in a transshipment joint venture with Brazil-based multinational mining and logistics company Vale S.A. The potential agreement would aim to lower transportation costs for Brazilian iron ore and thereby reduce input prices for China's beleaguered steelmakers.

The ambassador's comments were meant only to express interest, and the venture is still inchoate. However, the ambassador's comment is something of a peace offering to Vale. Since January 2012, the Chinese government has barred the company's fleet of 30 (soon to be 35) massive iron ore bulk carriers, referred to as Valemax ships, from docking at Chinese ports. The joint venture could allow for Valemax ships to offload iron ore at floating transshipment terminals or other Asian ports onto smaller vessels, which would then carry the ore to Chinese ports. China is by far Vale's largest customer, and Chinese state-owned shipbuilders participated in the construction of the fleet. The Valemax fleet was designed to lower Vale's shipping costs, currently around $22 per ton, by as much as $7 in order to bring it closer to Australian costs of $12 per ton.

It is still unclear whether the proposal represents emerging policy or is merely, at this point, a statement. For now, the significance of the ambassador's comment lies in what it implies about Vale's ultimate goal of direct access for its Valemax fleet to Chinese ports, suggesting that this alternative offer will let China keep its ban on direct docking in place for the foreseeable future.

A potential joint venture could reduce costs for Chinese steelmakers....

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