Vale delays ore shipments to China

Jamie Dale - Thursday 11 September 2008

Roger Agnelli: price negotiations with Asian steel mills would not take effect until 2009. Roger Agnelli: price negotiations with Asian steel mills would not take effect until 2009.

VALE has postponed an unknown number of iron ore shipments to China, with one Chinese news agency Thursday claiming nearly 100 ore carriers were sitting off the coast of Brazil’s loading ports. 

China’s Economics Reference, a newspaper of state-run Xinhua News Agency, said that the Brazilian mining giant had delayed the voyages because of a dispute over iron ore pricing. 

A spokesperson for Vale refused to rule out cancelled or postponed cargoes, adding that Vale did not comment on market rumours. 

Howe Robinson’s weekly report said that some stems from Brazil had either been cancelled or postponed due to “congestion management” or “ore price re-negotiation”. 

Norwegian shipping analyst DnB NOR Markets also confirmed in its weekly report that cargoes out of Brazil were cancelled or delayed this week, linking this with Vale’s attempts to increase the contract price of its iron ore. 

“This has been met with resistance from Chinese steel mills, and might even encourage more iron ore imports from nearer countries, such as Australia and/or India,” said the Oslo-based analyst. 

On Tuesday Vale demanded an 11%-11.5% price increase from its Asian buyers for its contracted iron ore. It said the move would bring prices into line with those paid by its European customers. 

The unprecedented contract amendment is understood to have been possible because a clause in Vale’s contract allowed price renegotiations if the gap between the Australian and Brazilian freight premium widened. 

Australian miners Rio Tinto and BHP Billiton secured better annual contract price increases than Vale from Chinese mills, based on the cheaper freight costs to ship iron ore. 

One market source said he understood that Vale was refusing to load ore until its terms were agreed by China’s steel mills. 

But Lloyd’s List has learnt that Vale’s Asian customers have agreed not to accept Vale’s demand for a price increase, made half way through the annual contract period. 

Vale chief executive Roger Agnelli told Reuters that the company’s price negotiations with Asian steel mills would not take effect until 2009. 

One London broker disputed the Chinese news agency assesment, saying that there were just 46 vessels positioned off Brazil’s loading ports at the end of last week, with the majority fixed under contract. 

He had not heard of any cancellations being made “just yet”, but was aware that Vale is now reluctant to accept fourth-quarter nominations, slowing down the rate of chartering for new cargo. 

In the short term, physical freight rates could soften further from the apparent shortage. 

The capesize average time charter rate yesterday was $68,409 per day, its lowest level since January 2007. The rate has fallen by $12,953 per day since the close of business last week, and down from an all-time-high of $233,988 on June 5. 

The Baltic Exchange C3 rate, which covers a capesize voyage from Tubarao, Brazil, to Beliun/Baoshan, China, hit a 14-month low yesterday of $48.9 per tonne. 

Castalia Fund Management’s managing director Philippe van den Abeele told Lloyd’s List that news of 100 ore carriers waiting off Brazil to load was “confusing” and that he was not sure which way to interpret it. 

This view is shared by many in the market, who all seem to be receiving mixed messages regarding the implications of both increased congestion as vessels wait to load and China’s steel mills’ rejection of Vale’s demands. 

If the delayed vessels are released, the market will become flooded with tonnage and rates will fall further. 

If congestion builds at loading ports, then rates could find support and rise. 

The forward freight agreement market responded positively late on Wednesday, halting the slide in the capesize fourth quarter contract. 

The capesize Q4 contract was trading on Wednesday at $83,000 per day, down from $112,000 at the close of business on Monday. Yesterday the Q4 contract had traded up to around $88,000.

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