Vale signs new deal with China

Updated: 2014-09-22 06:36

(China Daily Latin America)

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Vale signs new deal with China

Murilo Ferreira, president & CEO of Vale answered questions in an interview with reporters from Chinese press outlets on Sept12. Zhang Yuchen / China Daily

A contract signed by Vale and a Chinese shipping company has opened a new era in the Brazilian miner's shipment history, as well as ended a previous chapter of shipping problems with a Chinese partner.

Under the new deal signed on Sept 12 with China Ocean Shipping Co (Cosco), the largest dry bulk carrier in China, four existing ore carriers of 400,000 tons deadweight will be transferred to Cosco and chartered by Vale on a long term lease for 25 years.

The value of the transaction has not been released.

Just two years ago, Vale was refusing to use its vessels in protest of a Chinese ban on the Brazilian miner's Valemax mega-ships, which were designed to cut the costs of transporting iron ore to China, a journey of 45 days, and have not been allowed to dock at Chinese ports.

State-owned Cosco expected a "big" impact on operations from the boycott and was considering filing a complaint with the Ministry of Commerce, Cosco president Ma Zehua said in an interview in Beijing back in 2012.

Vale started operating Valemax vessels in 2011 in a bid to reduce the transport cost advantage of its Australian competitors who are closer to China. Vale had begun to build the Valemax ships in 2008 in a bid to achieve economy of scale and slash transport costs.

China is now producing more than half of the world's steel. In 2006, China was supplied iron ore by some of 20 countries. Today that figure is roughly 60 countries.

Vale's sales to China now represent more than 50 percent of its total sales. Vale is increasing its annual production volume of iron ore from 300 million tons to 450 million tons over the next four years.

"We are preparing ourselves to be very competitive in terms of cost with different projects," said Murilo Ferreira, president and CEO of Vale. "We are preparing to double our sales to China, from around 150 million tons last year to around 300 million tons after 2018."

Less affected by the slow world's economy, China's production and demand in 2011 was 683 million tons of steel; in 2012, it was 719 million tons of steel; in 2013, it was 779 million tons; and forecasts for this year are in the range of 820-840 million tons.

"At the end of this year we will see ore prices rise to the range of $95 to $100," said Ferreira. "Three years ago the price of iron ore was $170 or $180. Now it's $82 or $83."

With the new contract, 10 large ore carriers of similar deadweight will be built by Cosco for transporting the world's best iron ore from Brazil. Vale also intends to expand its overseas mining market through more production of nickel, copper and coal.