* China says move due to shipping downturn, safety issues
* China shipowners, steel industry oppose mega carriers
* Dispute adds to growing list of China-Brazil trade woes
* Vale sees Malaysia, Philippine hubs saving Valemax plan
By Fayen Wong and Jeb Blount
SHANGHAI/RIO DE JANEIRO, Jan 31 China
banned a giant new class of ship from its ports on
Tuesday, a move that checks efforts by mining giant Vale SA
to cut the cost of shipping iron ore to its largest
market and risks straining trade relations with Brazil.
China's trade ministry said it forbid the berthing of Vale's
400,000-deadweight-tonne "Valemax" vessels and other giant
freighters, to protect its own ocean-freight industry.
This action comes at a time when benchmark shipping rates
have fallen by two-thirds since October, slashing
revenue for shipowners a worldwide.
"At the end of the day, they (China) want to support their
own," said George Lazardis, an analyst at Greek broker
"They are interested in giving support to their shipowners,
which are starting to become a significant force."
As the world's second-largest and sixth-largest economies
increase their ties, China and Brazil have clashed over
iron-ore, shoes, aircraft, toys, automobiles, pesticides,
clothing and the right to own Brazilian farmland in recent
China overtook the United States to become Brazil's largest
trading partner in 2009, and Brazil is a vital source of the raw
materials and food needed to sustain the world's second-largest
China is concerned soaring prices for soybeans, iron ore and
other raw materials will put it too much at the mercy of
commodity exporters, while Brazilian industry says cheap Chinese
manufactured goods unfairly compete with local industry.
For the China Shipowners Association and major steelmakers,
the Valemaxes, some of the largest ships afloat, could be a
"Trojan horse", allowing Vale to hold out the promise of lower
transport costs as a cover for what they see as its true goal:
dominance of the world iron-ore market.
Vale is the world's largest iron ore miner, accounting for
more than a quarter of all seaborne trade in iron ore, the main
ingredient in steel. China is the world's largest steelmaker.
The giant ships are central to Vale's efforts to compete
with Australian miners BHP Billiton and Rio
Tinto , whose mines are closer to China, the
biggest iron-ore consumer.
The Valemax ships are large enough to hold three soccer or
U.S. football fields end-to-end on their decks.
"They (China's rulers) are not interested in whether Vale
will be able to provide cheap imports in comparison to
Australian imports," Lazardis said.
In December the China Shipowners Association called on Vale
to "immediately stop" building its fleet in a note on its Web
site and said Vale was trying to create "a monopoly" and engage
in "unfair competition."
China's decision suggests Vale may have made an unwise and
costly investment in one of the most talked-about shipbuilding
ventures of the past decade.
Vale's press office in Rio de Janeiro declined to comment.
No Chinese ports have regulatory approval to receive dry
bulk carriers of more than 300,000 tonnes. The Dec. 28 arrival
of the Berge Everest, a 388,000-deadweight-tonne Valemax, in
China's port of Dalian carrying Vale ore from Brazil was
probably a bureaucratic fluke, shipping industry sources said.
The Berge Everest was the first Valemax to visit a Chinese
port. Vale and shipping company partners with long-term
contracts are building 35 of the Valemax giants for an estimated
$4.2 billion in Korean and Chinese shipyards.
"This is really weird especially since most of them have
been built or are going to be built in China," said Bernardo
Lobao, steel and mining analyst at Studio Investimentos, a Rio
de Janeiro-based investment fund.
"This is a real tug-of-war and China is playing very tough,"
he added. "China's attitude is pretty amazing when you consider
that Vale went against its own government that wanted the ships
built in Brazil and decided instead to build them in China to
please its steelmaking clients."
China may be trying to use access to force Vale to cut
iron-ore prices or to get a better deal for Chinese shipping
companies that are bidding to buy the Valemax ships Vale owns
and operates itself, Lobao said.
Vale Chief Executive Murilo Ferreira was a founding partner
of Studio Investimentos in 2009 before moving to Vale in 2011.
Chinese financial magazine Caixin said on Tuesday that Vale
had apparently got around the regulation in December by using
the Berge Everest, a carrier owned by a Singapore company and
leased back to the Brazilian miner, to deliver ore.
Chinese maritime regulations require shipowners, or
representatives, to cooperate with customs when applying for
special entry permits.
The transport ministry said its decision to bar the
mega-ships was also in part linked to maritime safety issues. In
November a Valemax ship, the Vale Beijing, developed cracks in
its hull while loading for its maiden voyage at a Vale port in
Brazil and was pulled from service.
With Beijing keeping its ports closed to Valemaxes, the Rio
de Janeiro-based miner will have to rely on a costlier
trans-shipment hub in the Philippines and Malaysia to ensure its
mega-ships, each costing around $110 million, remain employed.
The transhipment centers' costs are unlikely to outweigh the
savings from using the Valemaxes, Lobao said.
The Malaysia center will be able to stock 60 million metric
tons, about a fifth of the firm's annual output of 300 million
tonnes, starting in 2014.
The world's largest dry bulk floating storage vessel, Ore
Fabrica, owned by Vale, has docked in the Philippines' Subic Bay
Freeport, a spokeswoman for the port said on Tuesday.
The 280,000-deadweight-tonne vessel will be used to transfer
iron ore from the Valemaxes to smaller ships for transport to
China and other Asian markets such as Japan and South Korea
starting in February, Vale said in a statement Tuesday.
Vale's preferred shares, the company's most-traded class of
stock, gained 2.6 percent in Sao Paulo to 42.69 reais, a
four-month high. The Bovespa Index of the Sao Paulo stock
exchange's most-traded stocks rose 0.48 percent.
In 2008 Vale inked a contract with Rongsheng Shipbuilding
and Heavy Industries of China to build 12 carriers valued at
$1.6 billion and is counting on a fleet of 35 Valemaxes.
China's latest snub highlights the difficulties foreign
firms face when doing business in China, where many senior
executives are close the Chinese government.
China Shipowners Association Executive Vice-President Zhang
Shouguo is a former deputy director of the water transport
division of the Ministry of Transport.
With the government owning many companies, what would be
commercial information in a capitalist country could also become
a state secret in China.
Rio Tinto's iron-ore negotiations manager, Stern Hu, was
arrested and charged in 2009 with stealing state secrets and
sentenced to 10 years in jail.