Vale iron ore ships face elevated cancellation risk - HSBC

Wednesday, 08 Feb 2012

HSBC Shipping Services Ltd said that there’s an elevated risk that Vale SA, the Brazilian mining company amassing a fleet of 35 of the world’s largest iron ore carriers, may cancel some of the contracts.

The vessels, each able to hold as much as 400,000 metric tonnes of ore, are excluded from China by port entry requirements for very large vessels that were tightened last week. The rules apply to dry bulk vessels larger than 350,000 deadweight tonnes, the China Shipowners Association said. Vale, the world’s largest ore producer, says it’s operating six vessels above that size, of which it owns four and charters two.

Vale remained committed to the construction of the remaining 29 ships, the Rio de Janeiro based company said last week, as part of plans to spend USD 8.1 billion on new ships and take greater control over freight costs from Brazil to China, its fastest growing market in Asia.

HSBC said in the report that “The shipbuilding program might look like an expensive mistake, but it is potentially even worse than that if they are banned from entering China. Six have already entered service and some of the remainder must now be at elevated risk of cancellation.”

None of the existing Vale owned ore carriers have been permitted to call at Chinese ports. The Berge Everest, owned by BW Group Ltd. and under a long-term contract to Vale, called at Dalian in December. Chinese shipowners opposed the vessels’ introduction on concern it would worsen a capacity glut and plunging rates. China is the biggest global user of iron ore, a steelmaking ingredient.

(Sourced from Bloomberg)