Vale to Cut Iron Ore Shipping Costs with Giant Vessels

Bloomberg reported today that Vale (NYSE:VALE) has made a move to cut costs further by using giant Valemax vessels to ship its iron ore. The company announced Tuesday that it had signed an agreement with China Ocean Shipping Co. to lease several vessels.

As quoted in the publication:

Vale will transfer four of its 400,000-metric ton vessels to Cosco, as China’s largest shipper is known, and charter them for 25 years, the Rio de Janeiro-based miner said in a statement today. Cosco will also build 10 vessels of similar size to ship Vale’s iron ore. No financial terms were given.

The Brazilian company started operating Valemax vessels in 2011 in a bid to reduce the transport cost advantage of Australian competitors closer to China. The accord, signed as iron-ore trades near five-year lows, suggests Vale may have overcome difficulties convincing China that anchoring the giant vessels at Chinese ports is safe.

Banco BTG Pactual SA analysts Leonardo Correa and Caio Ribeiro commented:

The deal makes sense to us as the company frees up some cash (in tough iron ore markets) and partners with Chinese players to help minimize any issue with the docking of very large ore carriers in China.

Click here to read the full Bloomberg article.