Brazil mining company Vale has docked one of its giant iron ore vessels in China for the first time, ending a year-long impasse with Chinese authorities that threatened to hobble the company's plan to cut shipping costs to its biggest market.
The 388,000-deadweight-tonne Berge Everest began unloading Wednesday at China's Port of Dalian. Vale has ordered 35 megacarriers at an estimated cost of $4.2 billion from Chinese and Korean shipyards. The world's second largest miner has been trying all year to get Chinese authorities to allow the megaships to enter that country's ports.
This is a huge success. It opens the door and helps Vale break a paradigm in the shipping industry, said Pedro Galdi, a steel and mining analyst with SLW Corretora, a São Paulo brokerage. The problems getting their ships into China had created a very bad feeling, but China needs the ore and Vale's ore is of very high quality.
Vale's first megaship cargo to China was forced to turn back in June due to the lack of a permit. Earlier this month, the 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 Vale Beijing's problem blocked one of Vale's main iron-ore terminals in Brazil for several days and raised questions about the safety of the entire fleet of Valemax vessels.
Vale, which sells about 40 percent of its ore to China, is counting on Valemaxes to slash shipping costs and better compete with Australian rivals BHP Billiton
It was not clear what prompted China to finally let one of the Valemax carriers into port. Vale executives in China and Rio de Janeiro declined to comment. A spokeswoman for the ship's owner, Bermuda-based Berge Bulk, and Dalian port officials were not immediately available for comment.
China Nov iron ore imports at highest since Jan: http://link.reuters.com/kaj55s
It costs $28 to $30 per tonne to ship ore from Brazil to China in large Capesize ships that are the Valemaxes' predecessors, double the $14 to $15 a tonne it costs to ship ore from Australia to China, according to AXSmarine.
Vale can make up for much of the freight difference by the quality of its ore, much of it more than 60 percent pure iron.
Vale preferred shares, the company's most-traded class of stock, were down 0.8 percent to 38.04 reais in São Paulo on Wednesday, the stock's third day of declines. Brazil's benchmark Bovespa index was down 2 percent.
The Berge Everest is expected to depart Dalian on Saturday, sources said.
The ship is unloading iron ore after arriving this morning. They will need 2-1/2 days to discharge such cargo, said a port agent on Wednesday. It is not clear at present who will buy the iron ore.
Vale hopes to use the giant ships to carry ore to distribution and storage centers in China and Malaysia, allowing it to maintain deliveries even during Brazil's rainy season, when torrential downpours hamper mining and disrupt rail links to Vale's ports, Galdi said.
Reuters Freightviews and independent shipping data confirmed the Berge Everest was anchored at the port. Industry sources said there were around 350,000 tons of iron ore onboard, enough to make the steel for more than three Golden Gate bridges.
Vale's fleet has faced stiff opposition from influential Chinese shipowners and steelmakers who fear the ships are a Trojan Horse that the miner will use to monopolize both the shipping and iron-ore markets at China's expense.
Vale's first mega bulk vessel, Vale Brasil, was forced to turn around in the Indian Ocean on its maiden voyage in June after the Chinese government failed to grant permission for the ship to dock at Dalian. It went to Taranto, Italy, instead.
The arrival of the Berge Everest is ill-timed for Chinese shipowners who are already struggling with a severe downturn in the industry. In the last year freight rates have fallen by more than a third, fuel has risen more than 10 percent and there is an oversupply of ships.
Things got so bad that China's top shipping conglomerate COSCO Group <1919.HK> <601919.SS> and Grand China Logistics halted payments to foreign ship owners earlier this year to renegotiate better terms.
Vale's ships won't break (bankrupt) any company, but it will be damaging, a Singapore-based ship broker said on Wednesday.
The China Shipowners Association urged Beijing this month not to rush into any decision on allowing Vale's ships into China, warning that the vessels have not been thoroughly tested and any oil leak from one could be catastrophic.
Vale Beijing was damaged while preparing to set sail from a Brazilian port on its maiden voyage.
Vale Beijing was built by South Korea's STX Offshore & Shipbuilding <028670.KS>, while Berge Everest was made by China's Bohai Shipbuilding Heavy Industry.
Shipping data this week initially showed the Berge Everest destined for a port in the Philippines after a brief stop earlier in Singapore.
For the past few days, it was drifting around the Phillippines area awaiting instructions, said T.S. Ang, technical executive at BW Fleet Management, which manages the crew and safety operations on Berge Everest. He was unable to confirm the ship's current location.
Vale plans to ship about 130 million tons, or 40 percent of its total iron ore output, to China next year.
China is expected to import about 720 million tons of ore in 2012, up from 679 million tons this year, according to a Reuters poll. Steel mills in the world's second-largest economy consume around a billion tons of ore a year.
Vale does not plan to own all 35 of the megaships it is having built. Of the existing six in the fleet, four are owned and operated by Vale, one by Berge Bulk and one by Korea's STX Pan Ocean
(Additional reporting by Chen Aizhu in Beijing and Jeb Blount in Rio de Janeiro; Editing by Simon Webb, Todd Benson, Jeb Blount, Jim Marshall and David Gregorio)