Update | Cosco, Vale forge freight pact in Chinese premier Li’s visit to Brazil
China’s national shipping lines have firmed up agreements with Vale to transport ore to China, finalising a deal between the Brazilian miner and China’s shipping industry just as premier Li Keqiang’s visits the Latin American country.
Vale completed the sale of four very large ore carriers to China Cosco Holdings for US$445 million and reached an agreement to sell another four to China Merchants Energy Shipping, the miner said in a statement.
The four ships sold to Cosco will be operated by China Ore Shipping, a newly formed joint venture between China Cosco Holdings and China Shipping Development, under a 20-year freight contract with an option to extend it for another five years, according to a knowledgeable source.
The deal is part of an extensive package of infrastructure and railway deals that Li brings to Brazil in his three-day state visit.
Tuesday’s firm contract follows a framework agreement between China Cosco and Vale September last year, as the two sides moved to thaw out a three-year spat.
China Ore Shipping was established last Thursday with US$330 million in issued share capital. China Cosco Bulk Shipping, a subsidiary of China Cosco, and China Shipping Development each hold 51 per cent and 49 per cent stakes, accordng to records from the Singapore Accounting and Corporate Regulation Authority.
Facing a much longer distance to China than rival miners in Australia, Vale in 2008 decided to design and build giant ore carriers, known as Valemax, to slash transport costs. But the move ran into a backlash from China’s national carriers, led by Cosco, with the Ministry of Transport banning the giant ships from docking in mainland ports in 2012.
Vale’s market share in China has gone down, with 18 per cent of China’s imported ore coming from Brazil last year, compared to 21 per cent in 2010. Australia’s share, in contrast, has grown from 43 to 58 per cent during the same period, China Customs data showed.
Each Valemax ship can carry 400,000 tonnes of ore, more than twice the capacity of regular ore carriers. It cost Vale US$120 million in 2009 to build the ship.
Both China Cosco and China Shipping Development are in a one-day trading halt on Wednesday, pending further release of information over overseas transactions, they said in filings to exchanges in Hong Kong and Shanghai.
China Cosco and China Merchants Energy Shipping agreed to build 10 more Valemax carriers to fulfill the shipping services for Vale in frameworks signed last year.
To sweeten the shipbuilding contracts, China Exim Bank on Tuesday signed a US$1.2 billion financing agreement each with China Ore Shipping and China Merchants Energy Shipping for the mainland firms’ future orders of the ore carriers, according to the source.
The total US$2.4 billion in financing is a draw-down from a US$5 billion loan agreement that China Exim Bank extended to Vale July last year when Chinese President Xi Jinping visited Brazil.
Vale also reached an memorandum of understanding with Industrial and Commercial Bank of China for up to US$4billion credit facility, Vale said in a statement.
