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Thursday, February 9, 2023

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Carriers warn Vale's big bulkers will dampen rates

Posted to Far East Maritime (by on December 9, 2010

Bulk carrier operators say the introduction of megaships in Brazil-China trade will depress the dry bulk market even further.

The dry bulk shipping business is going through a tough time. It is an incredible 80 percent down on the market peak in May 2008, and rates have led carrier operators on a wild and volatile ride ever since.

The industry is currently oversupplied with bulk carriers, even with strong demand out of China. November imports of iron ore were up 12.6 percent. However, a flood of new vessels is scheduled to hit the market next year, placing more downward pressure on rates and further eroding profitability.

Yet even as the industry struggles to deal with its supply and demand imbalance, along comes mining outfit Vale with a jaw dropping plan to boost Brazil-China trade.

The Brazilian ore giant will early next year take delivery of a 400,000 tonne iron ore carrier. To give you some indication of the size of the megaship, it is 130 percent bigger than the world’s largest container ship, Emma Maersk, at 11,000 TEUs.

The newbuilding will be the first of 30 such ore carriers that have been dubbed Chinamax vessels.

It is hardly surprising that the news has been greeted with incredulity. When oversupply of ships is the reason your market is struggling, flooding it with the biggest ships ever does not appear to be a sound strategy.

Unless you are Vale, that is. The megaships give Vale the cost-cutting economies of scale that will reduce the premium the company pays for shipping ore such long distances to China by more than 50 percent.

China’s demand for iron ore is still robust and shipping the commodity is unlike shipping containers. Ore travels from point-to-point and the ship is filled up in Brazil and emptied in China. There is no need for complex strings and port call wndows depth restrictions.

But ordering such large vessels three years in advance is an illustration of the supreme confidence Vale has in the market. The company reckons annual iron ore production will hit 311 million tonnes this year and 522 million tonnes by the end of 2015.

It may be good news for Vale, but not so much for operators of the world’s bulk fleet that will be faced with falling rates and excess vessel capacity.

Credit Suisse has estimated that the Vale ships could displace as many as 168 capesize vessels (150,000 – 180,000 tonnes). There are many capsizes coming online next year and the megaships threaten to put them out of business.


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