Vale inks record VLOC order

Brazilian mining giant Vale is set to recast the world?s seaborne iron ore trade, with the confirmation of an order for 14 giant bulk carriers worth as much as $2 billion. The largest order to date of very large ore carriers (VLOC) is at the centre of Vale?s ambitious plan to take greater control of soaring freight costs.

The world?s largest iron ore producer has frequently complained of high bulk carrier freight rates, which now hover at record-breaking levels, and nearly exceed the $118 per tonne price of iron ore. Vale has previously said the VLOCs will get this cost down to $12 per tonne, but long-term contracts of 20-plus years with steel mills are needed to underpin viability.

Vale has already ordered six VLOCs, including four of 388,000 dwt, under a 25-year contract with shipowner BW Group. These are set for delivery from 2011. The 14 new super-sized ships will each have 400,000 dwt capacity and brokers estimated their cost at $135m-$140m each. These newbuilding orders will also make the miner the largest operator of this vessel class with a fleet of 20 VLOCs.

A Vale spokeswoman said the company had exercised options in existing contracts but was unable to provide further details on where the vessels would be built, when they would be delivered or the classification society involved. The BW Group VLOCs are being built at Bohai Shipbuilding Heavy Industries in China.

Brokers speculated that the yard may be China?s RongSheng yard, a privately-owned facility that specialises in bulk carriers and tankers. It has received orders from Golden Ocean and Frontline. But the lack of government backing raises questions over whether the yard would secure refund guarantees from the Chinese banks, necessary to allow construction to begin.

With Vale?s iron ore exports forecast to hit 325m tonnes this year, and more than 400m tonnes by the time the VLOCs are built, the miner believes the economies of scale justify the investment. Formerly known as CVRD, Vale was a significant shipowner until it sold off its fleet of around 20 bulk carriers owned by subsidiary Docenave, earlier this decade. The move came just before the commodities boom triggered a five-year freight rate rally.

Since then, Vale executives have consulted widely around the maritime industry and shipyards, even considering plans to build vessels as large as 550,000 dwt.