“Biggest impact in 30 years”
The ambitious plans of Vale, the behemoth Brazilian mining and logistics multinational, involve using its own fleet of iron ore carriers to carry ore between its mines in Brazil to China. These mammoth 400,000 tonne ships will start rolling out next year, says Zodiac, and will drive freight rates southwards across the world.
The first of Vale’s 36 Chinamax ore carriers will be delivered in June 2011. Ian Shirreff, the CEO of Zodiac, says that this move will have “the biggest effect on the market that we've seen in 30 years." Zodiac is involved in importing iron ore to almost two dozen of the biggest steel mills that the State of China owns. Shirreff, based in Shanghai, was speaking in Amsterdam at the annual Coaltrans conference.
Vale is the second largest mining company in the world, besides the largest producer of iron ore and pallets and the second largest producer of nickel. It also mines manganese, ferroalloys, copper, bauxite, potash, alumina, aluminum, potash, bauxite and kaolin. Vale operates nine hydroelectric plants and, after a 5 billion dollar consolidation process that ended in 2007, now controls 85% of Brazil's 300 million tonnes annual iron ore production. It participates in mining operations, through acquisitions and joint ventures, in India, China, Australia, Canada, Finland, South Africa, Chile, Peru, Angola and Mongolia.
The Chinamax vessels include VLCCs that will be converted to carry ore. Shirreff feels that the sheer size and numbers of the ships will severely affect rates, which would fall to the $10,000 to $12,000 a day time charter rate seen in 1977; he expects this to happen within the next decade. Present rates for Capesize vessels, less than half the size of Vale’s future Chinamaxes, are at around $45,000 a day. Sheriff said that the “Vale effect” would be the biggest factor affecting freight rates in the next few years.
Gurinder Singh, Director of shipping at Vale, told the conference that Vale created the cape market by building Capesize vessels and egging the Japanese to build deep-water ports to take them. Today, "It's all about iron ore, it's all about China," he said. "Since 2009, Vale has tried to be part of the shipping market moving from selling free on board at ports to CFR (delivered), and freight and iron ore has decoupled so freight is now a much lower proportion of the delivered cost," he added. "Freight is now 20 per cent of the delivered cost or even lower”.
Zodiac expects China's growing demand for coal and iron ore imports to continue, given drivers like urbanisation, modernisation and general economic growth. It revealed that the Chinese are building ten ports to take the Chinamax vessels, out of which three will be ready next year. "Our customers and Vale need low and stable freight because when the Australia-Brazil differential is $40-60 nobody will buy ore from us but when the freight is low the differential is automatically very little," Singh said.
Elaborating on Vale’s expansion plans, Shirreff told the conference, "They're planning 80-100 vessels to drive the market down so low that the differential between Brazil-China freight and Australia-China is minimal”.
“Make no mistake, this will happen," he added.