China adds four VLOC terminals, more to come

(The story appears here courtesy our content partner Mysteel Global)

China, the world’s top steelmaking and iron ore importer, has approved another four ports along the coastal line in east and south China to operate their berths for 400,000 deadweight tonnage (DWT) iron ore carriers, or very large ore carriers (VLOCs), thus increasing the number of berths that are capable of receiving such giant carriers to 11, and this may not be the end of the story, as more will probably be added on in the years to come, according to the market sources.

“We are aware of the approval, though I have not seen the formal notice, and to me it is of no surprise especially with China’s so high iron ore import volume, but as for the real benefit of four more such ports, we are discussing internally as well,” an official from a shipping company shared.

The four terminals approved recently by China’s Ministry of Transport (MoT) and the National Development and Reform Commission (NDRC) are located in Lanshan port area of Rizhao, Yantai and Rizhao of Shandong in East China, and Sanduao of Ningde in Southeast China’s Fujian province, according to a photocopy of the notice from the MoT that has been circulated online in China.

Status of the four new giant iron ore terminals

With the latest approval, it can receive the VLOCs immediately, as all the facilities have been built long before and it had already conducted a trial run of the 400,000 DWT berth in June 2015, Landbridge Group, the operator of the terminal in Lanshan, confirmed on July 14 in its WeChat post.

The two Chinese authorities have made it clear in the notice that with the latest approval, no more administrative procedures will be needed to go through before opening the terminal for business, Landbridge’s post said.

This indicates that government’s support for more large iron ore terminals along the coastal line to facilitate iron ore logistics at lower costs, and to aid with Beijing’s initiative to relocate more steel capacities to the coastal area, it added.

As of now, the giant iron ore terminal at Yantai is up and running too, though it has not received any VLOCs yet, and the terminal at Sanduao port is still under construction that may take another two years to be commissioned, according to the officials from the two ports.

The status of the terminal at Rizhao is unclear as no officials or industrial sources could be found for comments.

Other than the newly-added four, the notice from the MoT also named Zhanjiang port in South China’s Guangdong province, Lianyungang in East China’s Jiangsu province, and Meizhouwan in Southeast China’s Fujian province to be the possible ones in the next batch for VLOC terminals.

“Vale’s Valemaxs or VLOCs, most of which have been chartered to the Chinese shipping companies, have been heavily engaged, busily moving iron ore from Brazil to the few existing terminals in China, and in a few years, Guinea’s Simandou iron ore projects may be shipping iron ore from Africa to China too, so there is a potential need,” a Beijing-based iron ore trader observed.

Besides, “China needs to inject funding in the infrastructure to rescue its economy anyway, and the investment in such ports will be money well spent, and more terminals will only bring down the average imported iron ore logistics costs, so why not?” he reasoned.

Who to benefit from more VLOC terminals in China?

It seems that after over 10 years of its initiative, Vale are finally fanning out its iron ore distribution centres in China to be close to its steelworks customers not only in China but also in Japan and South Korea through China to serve them better by customizing the iron ore blends just as requested.

Vale has so far set up a dozen of distribution centres in China covering all the existing seven VLOC terminals in the ports of Dalian in Northeast China’s Liaoning, Rizhao and Qingdao in Shandong, and Caofeidian in North China’s Hebei province.

Back in 2008, Vale ordered a total of 19 VLOCs in Asia with 12 built by China’s Rongsheng Heavy Industries at a contract value of $1.6 billion and the balance manufactured by South Korea’s Daewoo Shipbuilding & Marine Engineering Co, all to ship iron ore from Brazil to its dream distribution centres in China in 2009.

The plan, however, had been shelved on the strong opposition from China’s shipping companies as well as MoT’s safety concern, and it had to detour its maiden shipment of the first VLOC from Dalian to Italy in June 2011.

In 2015, however, the ministry and NDRC approved the first batch of seven VLOC terminals at Dalian, Caofeidian, Qingdao, Rizhao, and Zhoushan of Ningbo in east China’s Zhejiang province.

Vale will be the biggest and immediate beneficiary from the latest development, an official from a Shandong-based steel mill commented, which was echoed by many other market sources.

“Engaging such large-sized vessels to ship iron ore can reduce logistics costs substantially, especially in the long term, and for now, it is only Vale that has been deploying such vessels for its iron ore shipment, and it does have a grand plan to grow its iron ore blending business in China,” he said.

However, with more VLOC terminals added into the list, Vale may not be the only beneficiary, and all the Chinese companies with iron ore investment in Africa may be benefiting from all these mega terminals, market sources shared.

By 2019, China’s iron ore imports volume hit 1.07 billion tonnes, up substantially from 627.8 million tonnes ten years ago, indicating that the import volume had been growing in tandem with China’s steel output, and illustrating China’s heavy reliance on the imported iron ore not only in the past over ten years and probably in the years to come, Mysteel Global noted.

Benefits from terminals

China’s steel mills and ports, therefore, will probably be benefiting from the VLOC terminals too in the long run, a Shanghai-based analyst commented. “For Chinese steel mills, they will have more iron ore products from different origins to choose from, and for Chinese ports their throughput will grow substantially,” he explained.

In the years to come, more iron ore supplies are expected from Africa and other origins, and those with similar distance as Brazil to China will find it rather ideal to ship iron ore via VLOCs, just as Vale to China, though at present, no such berths are available in any of the African countries, the Shandong steel mill official said.

“Some Chinese enterprises have had reignited their interest in exploring overseas iron ore resources, and Simandou in Guinea of West Africa is a perfect example, as when it  commences production, VLOCs will be the best carriers,” a Singapore-based market source remarked.

In late June, China Baowu Steel Group was reported in discussion with Aluminum Corporation of China Limited (Chalco) on acquiring the latter’s stake in the No.3 and No.4 Simandou iron ore deposits tenures to co-develop the project with Rio Tinto, and another China-backed consortium with the name of SMB-Winning including Shandong Weiqiao has acquired the No.1 and No.2 tenures at Simandou for the iron ore resources, as reported.

In the next 10 to 20 years with more VLOC terminals in China to facilitate iron ore shipments at lower costs especially for those large-scale Chinese steel mills with sizeable and steady demand for imported iron ore, according to the Singapore source.

“It is a high time for China to source iron ore from more countries for a stable and more affordable supply especially with all the complexities in trade and political frictions,” he added, noting that other than Australia and Brazil, those untapped iron ore resources in the continents of America and Africa, once developed, will also need VLOCs.

VLOC terminals are not everyone’s dream

Not everyone, though, seems interested in the vast iron ore terminals in China, and an official close to an iron ore mine in Peru, for example, confirmed that no ports in this South American country will be able to dock VLOCs, nor such plans have been penned in the near term.

“In general, the natural condition of a port such as the maximal water depth and geologic structure are decisive whether it can handle such giant vessels, and artificial dredging can be done but it is rather costly to do so,” he said, pointing out that it is not guaranteed that America and Africa will be able to develop VLOC ports to pair with those in China.

An official from a 5 million tonnes/year steel mill in North China also expressed his nonchalance at the news.

“For us, we just use the few ports that are nearest to us for the most effective logistics and costs in iron ore procurement, and with our steel mill’s size, we have no use of VLOCs, as we can’t even afford to book half of the shipment at one go like what we are doing with Capesize vessels, so those giant iron ore terminals are really irrelevant,” he said.

About 50-60% of China’s steel capacities are hosted by medium and small-sized steel mills and their iron ore procurement models will be more or less as the above-mentioned steel mill, so the VLOC iron ore berths may probably only serve the best needs of China’s top 10 or top 20 steel mills that contribute to 40-50% of the country’s annual steel output, he added.

(Written by Victoria Zou, zyongjia@mysteel.com, and Hongmei Li, li.hongmei@mysteel.com)

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