Saturday, November 08, 2008
Question mark over Vale's $1.6bn VLOC deal
Michelle Wiese Bockmann - Friday 7 November 2008
Asian iron ore demand has deteriorated.
DOUBT has been cast over the future of one of the industry’s largest and most significant bulk carrier newbuilding orders — Vale’s $1.6bn deal for 12 very large ore carriers.
In May, the Brazilian iron ore producer revealed the order for the super-sized, 400,000 dwt ships, to be built at China’s Rongsheng shipyard, for delivery from early 2011.
But plunging freight rates, a sharp contraction in global steel consumption and deteriorating Asian iron ore demand has placed a major question mark over its future.
The 12 VLOCs are the largest order by value to appear on a list of more than 100 newbuilding cancellations, many of which remain unsubstantiated, now circulating widely throughout Greece.
Vale declined to discuss or clarify the order’s status, whether contracts of affreightment were attached to the vessels, or if any deposit had been paid.
A spokeswoman said no information was available.
Last week, one of the Greek shipping community’s most prominent shipowners, Excel Maritime Carrier’s Stamatis Molaris, told an investor conference call that the Vale orders for 12 VLOCs would not go ahead and many emerging yards would go “belly up”.
“You can bet that will be cancelled,” Mr Molaris said of Vale’s letter of intent to procure the 12 VLOCs.
“Those [VLOCs] are for delivery in 2010 and 2011. They are out of the question now. They are not going to happen.”
The credit crunch is also placing newbuilding orders at risk, with banks reluctant to issue refund guarantees to vulnerable medium-sized yards.
“The capacities that [emerging yards] have on the books will never hit the market,” Mr Molaris said.
Asked for further information, Mr Molaris told Lloyd’s List: “I only repeated what I have heard and read in the market.”
A Rongsheng shipyard spokesman said that the refund guarantees against an unspecified number of the Vale vessels had been secured.
This suggests that Vale may have already paid a deposit, or at least a first instalment, under its contractual obligations.
Asked if there had been any changes to the order, the spokesman said: “Nothing special,” but did not elaborate.
The 12 VLOCs form part of an ambitious plan by Vale to recast seaborne iron ore trade and take greater control of its volatile freight costs.
They are at the heart of a fleet of nearly 20 VLOCs that Vale plans to use on a dedicated Brazil to Asia shuttle service from 2011, to maintain control over its freight costs to Asian steel mills, its largest and fastest-growing market.
Vale agreed to a 20-year charter of a further four VLOCs ordered by BW Bulk in May 2007, also for delivery from 2011, from another Chinese yard. BW Bulk was not immediately available for comment on the status of its order.
The Vale shuttle service was first conceived by executives as dry bulk rates began to creep higher in 2006. By mid-2008 it cost nearly $108 per tonne to ship iron ore from Brazil to China, eroding Vale’s competitiveness against Australian iron ore producers, who are closer to the Asian market and have cheaper freight costs.
But the fourth quarter collapse in dry bulk freight rates has this week seen rates to ship iron ore from Brazil to China drop to less than $10 per tonne for the first time in nearly seven years, undermining the viability of a VLOC fleet.
In a remarkable turnaround, Vale has now slashed production, is paying its customers’ freight costs and has downgraded its export forecasts for 2009, citing the slumping steel market.
The global financial crisis has also triggered a wave of newbuilding cancellations at established and greenfield yards in Asia, as owners walk away from contracts amid plunging asset values.
Vale controls about one third of global seaborne iron ore trade, which reached 799m tonnes in 2007, and planned to export over 100m tonnes to China in 2008. - Additional reporting by Sandra Tsui.
As adapted from Lloyds List
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