Vale says giant ore ships to win China OK in months

Brazil's Vale, the world's No. 2 mining company, expects to winpermission "within months" to unload its big, new iron-ore shipsat Chinese ports, a move that will help ensure efficientdelivery of raw materials to China's growing economy, a seniorexecutive told Reuters. The ships, known as very large ore carriers (VLOCs), or"Valemax" class vessels, are needed to meet soaring demand foriron ore, the main ingredient in steel, Tito Martins, Vale'schief financial officer, said in an interview at the ReutersGlobal Mining and Metals Summit.

China's economy expanded by $2 trillion in the last decadeas growth averaged about 11 percent, he said. In the nextdecade, he predicted, it will expand by $4 trillion, even ifgrowth slows by more than a third.

The huge gains of the past decade, Martins added, mean thateven a slower pace of growth translates into huge demand. "Even if they grow at 7 percent, taking into account the size of thegross domestic production today, this growth in the next five to10 years will be much bigger than before," he said.

Vale is the world's largest iron-ore producer and suppliesmore than a quarter of the world's approximately 1 billiontonnes a year of sea-borne iron-ore exports.

To supply better the raw materials necessary for China'sgrowth, Vale has bet on the new class of larger, more-efficientships, which use less fuel per tonne carried.

Bigger than three soccer or American football fields, theValemaxes are some of the largest ships afloat. They can carryenough iron ore to make steel for 3-1/2 Golden Gate bridges.

But China's government has been reluctant to grant the shipsaccess to the country's ports.

Chinese ship-owners consider the Valemaxes a "Trojan Horse"whose foreign ownership and huge volumes will undermine thecountry's control of imports. Many are hurting after shipping rates plunged by more than half to about $900 a tonnesince December. The first such carrier suffered a hull crack onits maiden voyage last year, also raising concerns the giantships are unsafe.

Vale has said it needs the ships to compete with Australianore producers such as BHP Billiton and Rio Tinto, which are closer to China and pay about half thetransport fees to move their product to the world's largest oremarket as Brazilian producers do.

"The big vessels are here to stay, this is a technical thingand we are just waiting for the ports to be adapted to receiveour ships," Martins said.

"It's going to happen soon."

The first of the as much as 400,000-deadweight-tonne Valemaxes began operating late last year. Vale hopes to build 35by the end of 2013, at a cost of about $4.2 billion.

While Vale operates several of the vessels itself, most areoperated by third parties under long-term transport contracts.The company is in talks to sell even those ships it operates.

"We are in the mining business, not the shipping business,"Martins said.

So far, only one Valemax has been granted permission tounload at a Chinese port. Since the December visit of the BergeEverest to the port of Dalian, all ships of more than 300,000deadweight tonnes have been banned from Chinese ports.[ID:nL2E8D10FN]

Even with slower annual growth, Martins said, economicexpansion is penetrating into the western reaches of China andthe government is committed to the steel-intensive business of building new housing.

He expects China to build 8 million new "social" housingunits in 2012, about the same as in 2011. Over the next severalyears, China will need to build 70 million housing units.

"A slowdown in China doesn't necessarily mean a recession,"Martins said, adding that the steel business has been growing atrates faster than the overall economy.

Iron ore prices are likely to remain above $120 a tonne inthe next several years, he said, because demand remains strongand at prices below that, Chinese producers of low-quality orebegin to lose money.

"Any time it falls to $120 a tonne or below, it bouncesback," he said. "The $100 to $120 a tonne level is a level wheremany marginal producers start having difficulty."

Ore with 62 percent iron content rose for asixth day in seven on Wednesday, gaining 0.4 percent to $147.70 a tonne, its highest in more than five months.

A similar level for nickel, for which Vale expects to becomethe world's largest producer this year, is $16,000 a metrictonne. Below that, Chinese nickel-pig-iron producers beginlosing money, he said.

Nickel for delivery in three months fell for a fifthday in six on Wednesday, slipping 1.2 percent to $17,575 a tonnein London.

"We are confident we will not see prices (fall) to levels wesaw 10 years ago," Martins said.