Bloomberg reports that COSCO, China's biggest operator of dry-bulk ships, said Vale SA was refusing to use its vessels to protest a Chinese ban on the Brazilian miner’s mega-ships.
China COSCO, which operates commodity vessels and Asia’s biggest container-ship fleet, fell as much as 5 percent in Hong Kong.
The state-owned company expects a “big” impact on operations from the boycott and it’s considering filing a complaint with China’s Ministry of Commerce, President Ma Zehua said in an interview yesterday in Beijing. Vale, the world’s biggest iron-ore producer, has shunned COSCO’s fleet for about two months, even if it meant using more expensive ships from other owners, he said. Unit China COSCO Holdings Co. fell to the lowest in almost four months in Hong Kong.
“Many recent steps taken by Vale aren’t rational,” Ma said. “We believe their decisions are based on their perception that COSCO is doing something to lobby the government and not allow Valemaxes into Chinese ports.”
COSCO has safety concerns about the Valemax vessels, which are almost as big as the Bank of America Tower in New York, Ma said. The miner’s plan to spend at least $8 billion on a fleet of 35 mega-ships has also hit shipowners’ earnings by creating new competition, and stoked tensions between Brazil and China according to Johnson Leung, a Jefferies Group Inc. analyst.
“We don’t think the 400,000-ton iron-ore carrier designed and built by Vale is a safe design,” Ma said. “Over the years ahead, we may see a growing number of safety problems.”
Vale, based in Rio de Janeiro, didn’t comment on whether it was boycotting COSCO or on safety concerns in reply to Bloomberg News questions about the topics. The company has previously said it expects to eventually win Chinese permission to use the ships.
“As usual, Vale respects China’s sovereign decision about the issue,” it said. The miner sold 47 percent of its iron ore and pellets to Chinese customers in the first quarter, up from 41 percent a year earlier.
China transport ministry spokesman He Jianzhong didn’t answer a call to his office in Beijing today.
China COSCO, which operates commodity vessels and Asia’s biggest container-ship fleet, fell 4.7 percent in Hong Kong to HK$4.04, the lowest closing price since Jan. 16. The Tianjin- based company has tumbled 44 percent in the past year.
Rates (BDIY) for capesize vessels, which are about half the size of Valemaxes, were the lowest on average since at least 2000 in the first quarter because of a glut of ships and slower Chinese demand for iron-ore shipments. China COSCO (1919), which operated 88 capesize vessels as of March 31, posted a first-quarter loss of 2.7 billion yuan ($430 million). The capesizes accounted about half its dry-bulk capacity.
Vale plans to buy 19 very large ore carriers, each about 400,000 deadweight tons, and to lease another 16 on long-term contracts, as it seeks lower freight costs to China from Brazil. Chinese shipyards will build 20 of the vessels.
So far, 10 Valemax vessels have been delivered, according to data compiled by Bloomberg, even as Vale struggles to get permission to use Chinese ports. The miner has instead set up a transit facility in the Philippines where iron ore can be taken off mega-ships and loaded onto smaller vessels.
“This started as a commercial issue and then escalated into a political matter,” said Jefferies Group’s Leung. “It could drag on for a long time.”
China Shipping Development Co. (1138), the dry-bulk unit of China’s No. 2 shipping group, hasn’t had vessels refused by Vale, said Yin Cheng, its head of ocean shipping. Most of the company’s dry-bulk fleet is on long-term contracts with Chinese steelmakers, she said.
Vale said last year that three Chinese ports -- Dalian, Dongjiakou and Majishan -- were able to handle mega-ships. The 388,000-ton Berge Everest delivered a load to Dalian in December, the only time one of the vessels has taken cargo to a Chinese port.
The China Shipowners Association, whose members hold about 80 percent of the nation’s shipping capacity, has complained to the government about the Valemax ships and called on Vale to stop building them. It has also advised members not to take on the vessels. Vale has held talks with Chinese operators about selling or leasing mega-ships, Teddy Tang, chief financial officer of its China operations, said in September.
Opposition has contributed to the government not yet approving the use of Vale ships at Chinese ports, Zhang Changfu, general secretary of the China Iron & Steel Association, said yesterday. Steelmakers would welcome the vessels because they would reduce freight costs, he said.
The savings may not be that big as many Chinese steelmakers are located in inland provinces and they will still need to transport the iron ore from coastal ports, Ma said.
The Valemax spat, discussed by Brazilian Vice President Michel Temer and Chinese Vice Premier Wang Qishan in February, is part of wider tense relations between Brazil and China. Last year, Brazil slapped tariffs on a range of Chinese goods to defend local manufacturers. A tax on imported cars also affected Chinese automakers.
China surpassed the U.S. as Brazil’s largest trading partner in 2009. Trade between the two grew 16 percent last year to $77.1 billion.