something of interest

Vale signs record $2bn VLOC order

by Lloyd's List in London | 11:56AM, 22 May 2008


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Brazilian mining giant Vale is set to recast the world's seaborne iron ore trade, with the confirmation of an order for 14 giant bulk carriers worth as much as US$2bn.

The largest order to date of very large ore carriers is at the centre of Vale's ambitious plan to take greater control of soaring freight costs.

The world's largest iron ore producer has frequently complained of high bulk carrier freight rates, which now hover at record-breaking levels, and nearly exceed the US$118 per tonne price of iron ore.

Vale has already ordered six very large ore carriers, including four of 388,000 dwt, under a 25-year contract with shipowner BW Group.

These are set for delivery from 2011.

The 14 new super-sized ships will each have 400,000 dwt capacity, Vale chief executive Roger Agnelli revealed.

Brokers estimated their cost at US$135m-US$140m each. These newbuilding orders will also make the miner the largest operator of this vessel class with a fleet of 20 VLOCs.

Mr Agnelli quietly released details of the order at a signing ceremony last week with Japanese banks to tap funds for US$10bn expansion plans.

“Asian markets are growing and they will continue to grow,” Mr Agnelli said.

“In order to compete in the Asian market, Vale is making improvements in logistics and has ordered 20 carriers of the 400,000-tonne class. We believe this will make a good contribution to operations in Asia in the years ahead.”

A Vale spokeswoman said the company had exercised options in existing contracts but was unable to provide further details on where the vessels would be built, when they would be delivered or the classification society involved.

The BW Group VLOCs are being built at Bohai Shipbuilding Heavy Industries.

Freight rates to China are behind Vale's move. Costs to transport iron ore to China are nearly US$108 per tonne, almost double afrom a year ago, and five times more than prices two years ago.

Vale has previously said the VLOCs will get this cost down to US$12 per tonne, but long-term contracts of 20-plus years with steel mills are needed to underpin viability.

With Vale's iron ore exports forecast to hit 325m tonnes this year, and more than 400m tonnes by the time the VLOCs are built, the miner believes the economies of scale justify the investment.