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China and Brazil Reach Agreement on Iron Ore Shipments

China and Brazil Reach Agreement on Iron Ore Shipments

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Aug. 25, 2015 (EINRS)–Brazil’s Vale, the world’s largest exporter of iron ore to China, a few years ago ordered 35 new, giant “Valemax” ships (400,000 DWT–deadweight tons–bigger than any other cargo ship out there), and have already taken delivery on 30 of them from Chinese and South Korean shipbuilders. However, Chinese shipping companies, who feared being pushed out of the market by the highly efficient new Valemax carriers, got the Chinese government to prohibit docking of anything larger than “Capesize” ships (350,000 DWT) in Chinese ports. But Vale this summer reached an agreement with some of these Chinese companies; set up a 51-49 joint venture company with them that gave the Chinese the majority share; then sold four of the Valemax ships to the joint venture; and then had that company lease them back to Vale for 25 years. That way, everyone gets to share in the profit from the new ships. The first such ship docked at the port of Qingdao, China, on July 4, 2015.

The physical economic savings of the Valemax giants are significant–up to 15% overall–to Chinese steel producers who import the Brazilian iron ore. The big ships provide a 35% saving on fuel per ton transported; and they can save up to 15% on shipping time, which is reduced from 40 to 35 days by being able to dock directly in China, and not have to offload the ore to smaller ships in Subic Bay, Philippines, or other locations in Asia that Vale uses. Additionally, the Valemax ships can offload cargo twice as fast as Capesize ships.

And then there are the significant further savings in time and distance that will occur once the Nicaragua Grand Inter-Oceanic Canal opens in 2020–which, unlike even the expanded Panama Canal now under construction, will be large enough to handle Valemax ships. That will mean that the iron ore can be shipped {westward} from Brazil, through the Nicaragua Canal, and then across the Pacific to China–saving over 10% in time and distance over the current route across the Atlantic.

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