Vale yet to sell huge iron ore cargo in China-traders

Wed Jan 11, 2012

* Vale cargo stored in bonded warehouse in Dalian
* Shipment may be sold in spot market at discount
* Vessel carried 350,000 tonnes of iron ore

SINGAPORE, Jan 11 (Reuters) - Brazilian miner Vale has not yet sold its first mega iron ore cargo delivered to China two weeks ago, and has instead stored the material near a port for now, traders said on Wednesday.

The 388,000-deadweight-tonne vessel Berge Everest, which carried 350,000 tonnes of iron ore, unloaded at China's Dalian port in late December, ending months of delays in getting the world's biggest dry bulk ships into China.

"It was discharged into a bonded warehouse in Dalian," said an iron ore broker in Singapore. "From Vale's point of view, it's not particularly wise to sell right now given the lacklustre demand from Chinese mills."

"There's a lot of material in bonded warehouses across the coast at the moment because of the demand situation," he said.

Vale may be waiting for Chinese demand to pick up, possibly after the week-long Lunar New Year break in late January, before selling the cargo, traders said.

The world's biggest iron ore miner, hoping to slash shipping costs to China by using a new fleet of mega dry bulk carriers, was not planning to sell the maiden cargo from Berge Everest immediately, said an iron ore trader in Hong Kong.

Vale, which sells about 40 percent of its ore to China, is counting on a fleet of 35 Valemaxes to cut shipping costs and better compete with Australian rivals BHP Billiton and Rio Tinto.

"Vale just wanted to show its Chinese clients that its vessel can berth in China," he said, adding the cargo is likely to be sold into the spot market, instead of to a single buyer on a long-term contract.

"We're quite sure it's not sold yet. It should be put in the spot market, we're quite confident," said the Hong Kong trader, who sells iron ore to mills in mainland China.

SHORT-TERM PLOY

Vale may offer a discount for the cargo of high-grade ore with 65-percent iron content given that it was the first material shipped on its Valemax, he said.

Offering a discount for the cargo could be a "short-term ploy" by Vale to draw customers to its big shipments, said Mark Pervan, global head of commodity research at Australia and New Zealand Bank.

"From a short-term point of view there potentially could be some discount. But they won't want to be doing this on an ongoing basis because it defeats the whole purpose.

"The whole reason for those ships was to try and be competitive against the Australians. So if you're going to be selling it to the market at a big discount, you'll lose any upside from the lower freight cost," Pervan said.

A spokesperson for Vale was not immediately available for comment.

Vale's first megaship cargo to China was forced to turn back in June last year due to the lack of permits . In early December, Vale Beijing, the newest member of the "Valemax" fleet -- 50 percent bigger than most ore carriers and one of the largest afloat -- developed cracks in its hull on its maiden voyage.

The China Shipowners Association has opposed Vale's fleet, worried that the vessels will give the miner monopoly on both the shipping and iron ore markets at China's expense.

The low quality of China's iron ore has made it heavily reliant on imported material, a market controlled by Vale, Rio Tinto and BHP Billiton .

A Reuters poll of analysts in mid-December showed China's iron ore imports would jump to a record 720 million tonnes in 2012, with its steel output rising to 728 million tonnes, also an all-time high.

China's iron ore imports rose nearly 11 percent to 686.06 million tonnes in 2011, and traders said firm Chinese demand should keep spot iron ore prices .IO62-CNI=SI, which stood at a seven-week high of $142.30 a tonne on Tuesday, high.

(sourced Reuters)