MARKETS SPECTATOR: Miners want a Vale-China battle

BHP Billiton and Rio Tinto could have been forgiven for uttering a shriek when news last week broke that their biggest iron ore rival, Vale, had berthed one of its 400,000 deadweight tonne vessels at a Chinese port. The shipping industry was breathless in anticipation that Vale and China had finally ended a dispute that has prevented Vale from exporting its iron ore via the largest bulk carriers in the world.

Fortunately for BHP Billiton, Rio Tinto and their smaller counterparts like Atlas Iron there is no sign the dispute between Vale and China over the very large ore carriers has ended. China, the world’s second-biggest shipbuilder, is not happy that Vale has its own vessels and is not chartering ships from companies such as its own Cosco Group.

Shipping is in its worst shape for years. Cosco is bleeding red ink. So-called Cape sized vessels, 170,000 deadweight tonnes, and the daily benchmark for the state of the shipping market, can be chartered for less than $5,000 a day. The break-even figure for a ship owner is $26,000.

Atlas Iron managing director Ken Brinsden told Business Spectator that China has a strong vested interest in helping its own ship builders.

Vale’s very large ore carriers are an attempt to reduce the freight cost differential between Brazil and Australia. Before its very large ore carriers fleet was built that differential was $10 a tonne, i.e. it cost Vale $10 a tonne more to ship its iron ore to China than its Australian rivals. With no end in sight for the dispute between Vale and China, Brinsden and fellow iron ore miners can breathe easier.