There is a new piece out by FT on Valemax ships. Main points:
- The latest figure on the proposed fleet is 35 ships. At 400,000 tonnes, that would equate to 14mn tonnes in additional capacity, or 70 capesize ships.
- Chinese ship makers are accusing mining companies of monopolistic practices. But many of the ships will be built in Chinese shipyards and financed by Chinese banks.
- Valemax ships are expected to result in cost savings of 25%.
- The first Valemax ship was delivered on 25 November.
If you may recall, we cited the Valemax ships as fairly dramatic anecdotal evidence in our latest note on the shipping industry. For a miner though, costs are essential. They cannot control the value of their reserves; what is in the ground is already in the ground.
What the miners can control are their costs. Since the bulk of Vale’s mines are located in Brazil, when selling to China, they are at a transport cost disadvantage compared to Rio Tinto and BHP Billiton, which have extremely large iron ore reserves in Australia. These ships are meant to reduce both the level and volatility of shipping costs for Vale’s iron ore, bringing them closer to parity – at least on that segment of their cost structure.
This talk of iron ore demand in China corroborates with the data point from the Rio Tinto Investor Summit today: Rio Tinto will be increasing capital expenditures by 17% to cope with Chinese demand for iron ore as well.