Vale mulling 63% iron-ore production increase by 2015

22nd April 2011 By: Keith Campbell - Creamer Media Senior Deputy Editor

Reviewing the worldwide iron-ore market, Brazilian diversified mining giant Vale’s global sales director, Michael Zhu, told a recent mining conference in Singapore that there “will be no additional supply coming to the market this year and Chinese demand continues to grow as its steel production expands”.

Consequently, the global supply for iron-ore would be constrained this year. As far as Vale was concerned, “our concern is how we can catch up with demand”.

Vale plans to increase its output of iron-ore to 522-million tons in 2015. The company expects to produce 320-million tons of iron-ore this year, a small increase over the 311-million-ton output of last year.

Vale’s global sales office is now based in Singapore, having been moved there from Rio de Janeiro in October. “Sixty per cent of our output comes to Asia,” explained Zhu, “so Singapore makes sense as our sales hub.”

A key component of the group’s iron-ore strategy is the acquisition of the world’s biggest dry bulk carrier ships. These are 400 000 deadweight-ton behemoths. (Deadweight tonnage comprises the weight of the cargo, fuel, water, food, crew and any ballast, and not of the ship itself.) Vale is reported to have no fewer than 36 of these giants on order, to be delivered from now until the end of 2013. It is reported that some will be new vessels and some will be converted from supertankers (more formally known as very large crude ore carriers (VLOCs)). “Our intention is to carry more and more [iron-ore] on our own fleet,” he said.

Each of the first 12 of the new vessels, which are being built by China’s number three shipbuilder, Jiangsu Rongshen Heavy Industries, will have a length of 360 m – greater than the 324 m height of the Eiffel Tower – a beam of 65 m and a draft of 23 m. Each will have seven holds and will be able to load ore at a rate of 13 500 t/h in each hold. Fully loaded, they will have a normal operating speed of 14,8 knots.

The first of these new ships was delivered to Vale at the end of March, Zhu reported. Categor- ised as Chinamax ships, these VLOCs are not constrained in their size by the dimensions of the Panama or Suez canals, for they will never use them. Until now, the biggest VLOC has been the MS Berge Stahl, which weighs in at 365 000 deadweight tons.

Vale’s in-house fleet of VLOCs will slash its shipping costs to China. Back in 2008, the mining group was, it seems, paying more than $100/t to ship iron-ore to China that was priced at $80/t. Even today, the cost of shipping iron-ore from Brazil to China means that Vale’s product is $15/t more expensive than iron-ore from Australia. Vale’s new fleet of VLOCs will cut this cost difference by more than 50%, to $7/t. The company is confident that the higher quality of its iron-ore will compensate for the remaining price differential with the Australian product. In December, some analysts told the Reuters news agency that the new VLOCs would allow Vale to increase its share of the Chinese market, but that Australia would remain the number one supplier to what is now the world’s second-biggest economy.

Currently, only Ponta da Madeira, in Brazil, and Rotterdam, in the Netherlands, can handle such VLOCs, but, in China, the ports of Dalian and Dongjiakou are expanding their facilities to accommodate these giants. Vale is also constructing facilities in Oman and Malaysia which will be able to take its new VLOCs and where they will be able to transship their cargoes to smaller, Capesize, vessels for further distribution to customers in the Middle East and Asia.

Meanwhile, Vale’s controlling shareholder, Valepar (itself owned by Bradespar, BNDESPar, Elétron, Litel and Mitsui) has announced it has nominated the current head of Vale Canada (previously Vale Inco), Murilo Pinto de Oliveira Ferreira, to become Vale’s new CEO when the present incumbent, Roger Agnelli, steps down on May 22. The nomination has to be approved by the group’s board before Ferreira can become CEO.