Vale Signs 27-Year Agreement with China COSCO

On Friday, Brazilian mining firm Vale SA entered into a 27-year contract of affreightment with China COSCO for the transport of Vale's iron ore. 

Under the contract, China COSCO will ship about 16 million tons of ore annually, beginning the first half of 2018 and extending until 2045. 

The news follows a major order of Valemaxes placed earlier this month. COSCO and China Merchants Group, together with ICBC Financial Leasing, contracted for 30 of the vessels from Shanghai Waigaoqiao Shipbuilding, Beihai Shipbuilding, CIC Jiangsu and Yangzijiang Shipbuilding.

China Merchants Group has a preexisting contract with Vale for the purchase and operation of 10 newbuild Valemaxes, in addition to four used ships it purchased from Vale.

All entities involved in the shipbuilding deal are state-owned enterprises, with the exception of Yangzijiang Shipbuilding. 

The new vessels will give Chinese shipping firms control of about 30 percent of the nation's iron ore imports, analysts say. Maritime consultant Basil Karatzas suggests that with the order, China will be able to effectively control iron-ore bulker day rates for at least a decade. Iron ore is easily the most-shipped dry bulk commodity by tonnage, implying large knock-on effects in the rest of the already-depressed bulker market. 

The reported price was roughly $2.5 billion, or about $83 million for each, and will provide a much-needed boost for the yards. Orderbooks are down significantly this year due to simultaneous downturns in the container, bulk and offshore sectors.

Separately, on the day the order was announced, bankrupt Chinese yard STX Dalian sold an unfinished Valemax to its original buyer, PAN Ocean, for $17 million. PAN Ocean's original contract for the vessel was reportedly worth $120 million, giving context to the $83 million price for this months' orders.

Vale introduced the Valemax fleet in 2010, but ran afoul of Chinese port regulators, who claimed that the ultra-large vessels were unsafe. Authorities lifted the port ban in 2015, after Vale had sold or leased the ships to Chinese operators. 

At 400,000 dwt, about twice the capacity of a capesize, Valemax ships are the largest class of bulk carriers and among the largest vessels ever built.