ReutersVale eyes Malaysia for $1 bln pellet plant06.10.08, 2:12...

Reuters
Vale eyes Malaysia for $1 bln pellet plant
06.10.08, 2:12 AM ET


Brazil - (Updates, adding quotes, background)
By Nick Trevethan

SINGAPORE, June 10 (Reuters) - Brazil's Vale favours Malaysia for a $1 billion Southeast Asian iron ore pelletizing project, a company official said on Tuesday.

"We've been looking at a lot of options in Southeast Asia ... Vietnam, Thailand, Malaysia, but Malaysia has more development options," Renato Hendriksen, marketing manager for Vale, said on the sidelines of the Steel Outlook 2008 conference in Singapore.

"We are looking of course for political and economic stability, but I think the main issue is a deep-sea port ... natural gas, though not that much, and all the government and financial (systems)."

He added that Vietnam and Thailand had not yet been ruled out. "But discussions are more advanced in Malaysia. If things move well, we could make a decision within the next two years, then maybe one year more for construction."

Hendriksen said the plant would have a minimum capacity of 7 million tonnes and would supply steel mills in Malaysia and Indonesia and further afield in Asia.

"We will sell locally for sure, we can even reach the coast of India -- they really need pellets there. We can send to our colleagues in Japan, southern China, Korea -- all those countries.

He said the project would also include a deepwater port that could take some of the new breed of Very Large Ore Carriers (VLOC) with tonnages of around 400,000 tonnes.

Hendriksen said Vale would commission its own VLOC fleet and hoped to have these vessels after 2013.

Currently, Vale uses Capesize vessels with capacities of 100,000-180,000 tonnes to move bulky iron ore around the world.

"We really need to improve. It's all about the freight market. It's tough for us who sell and it's tough for customers."

The Baltic Exchange's capesize freight index, which monitors costs for classes of merchant ships typically hauling 150,000-tonne cargoes, is at 19,253 points, just off a record 19,687 hit on June 5.

Those high freight rates make Australian iron ore comparatively cheaper than material from Brazil for buyers in Asia, and Australian miners are seeking higher prices to reflect the reduced freight cost.

Vale has already settled annual contracts with Asian buyers at levels around 70 percent above last year, but Rio Tinto and BHP Billiton (nyse: BBL - news - people ), which with Vale dominate the global seaborne iron ore trade, are holding out for more, and have been selling on a spot basis instead.

Hendriksen said iron ore pricing was "a very delicate question" and Vale did not want to see the existing annual benchmark contract system abandoned for a scheme that priced ore off an index.

"We need to support the benchmark system. Cycles go up and down and it will be better for both parties -- miners and steel mills -- to keep on this benchmark," he said, adding that Australian producers were undermining the system.

"It's not happening any more. The Australians have put too much volume on the spot market, something Vale doesn't do, and have now created an opening for these indexes." (Editing by Ian Geoghegan)