Caixin
Jan 31, 2012 03:14 PM

Over Chinese Objections, Vale's Ship Comes In

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A range of steel and shipping industry executives in China were utterly befuddled by the sudden arrival of the mega-ship Berge Everest at the Port of Dalian in late December.

The ship moored December 28 and promptly disgorged a massive cargo of 350,000 tons of iron ore, mined in Brazil by Vale SA for sale to steel producers in China.

Industry insiders were stunned that such a huge vessel had been given Chinese government permission to offload Vale's ore at a Chinese port. The powerful China Shipowners Association (CSA) and major Chinese shipping companies such as COSCO Group had long opposed a plan for mega-shipping floated by Vale, one of the world's largest mining companies and a key supplier for Chinese steelworks.

And several domestic trade groups were doubly defensive about the Brazilian company's proposal – currently on hold – to build an imported ore distribution center in China.

In the eyes of many domestic industry players, the arrival and unloading of the Berge Everest signaled clear government support for Vale's ambitious proposal to expand in China and rejection of the trade groups' arguments. One source said they were right.

"Relevant party and government departments are currently working with Vale on its planned distribution center in China," a government source told Caixin.

According to Chinese maritime regulations, a shipping company or its representative must apply for permission before bringing a foreign-owned vessel to a Chinese port. Moreover, shipowners must cooperate with customs and other government agencies. A ship such as the Berge Everest can be refused entry by a single agency any step of the way.

Opponents of Vale's large-scale shipping and distribution center proposals had indeed tried to block the Berge Everest and erect barriers to future ore carriers through the government. To that end, CSA sent several appeal letters to central government departments in the first half of 2011 including the Ministry of Transport and National Development and Reform Commission.

Late in the year and "just before the Berge Everest entered port," a CSA source said, the trade group's executives wrote again to transport ministry officials, asking them to bar the Vale shipment. "But there was no response."

Competitive Concerns

Chinese shipping firms say they expect to suffer financially if Vale follows through with plans to regularly ship ore in supersized, dry bulk carriers such as the Berge Everest and supply steelworks through its own distribution facility in Chinese ports.

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