Experts say four new ports opening in China to take Vale SA's extra-large vessels from Brazil will unlikely dim the impact of Australia's surging iron ore miners, which have helped the country's exports hit a record high.
China’s Ministry of Transport and the National Development and Reform Commission originally approved the berthing of the Valemax ships, each with a capacity of up to 400,000 deadweight tonnes, at seven ports in 2015 across Dalian, Tangshan, Qingdao and Ningbo, following a three-year ban amid environmental concerns.
Citing Chinese metals market data firm Mysteel Global on July 25, the South China Morning Post reported the opening of four new ports across the Shandong and Fujian provinces that can take vessels of that size.
The Valemax vessels dwarf the ships that Australian iron ore exporters use — Capesize ships with a capacity of between 170,000 dwt to 190,000 dwt, and Newcastlemax ships with capacity of between 200,000 dwt to 220,000 dwt, a shipping and freight expert told S&P Global Market Intelligence.
The massive ore carriers belong to Brazilian iron ore producer Vale, whose executives said July 30 that the company was "sticking to" its 400 million-tonne-per-annum run rate plan for 2022, subject to markets, and will exercise its "value over volume" mantra in further planned mine expansions.
Vale Executive Director for Ferrous Minerals Marcello Spinelli told analysts on a call that the company will produce around 310 Mt of iron ore in 2020, which will be at the lower end of guidance for the year.
Strained relations
Though the South China Morning Post suggested the new ports could put Australian iron ore "under threat" amid strained relations between the two countries, the shipping expert said that the newer berths on their own would not affect the balance of Australian versus Brazilian ore being imported into China.
Australian Resources Minister Matt Canavan criticized iron ore major Fortescue Metals Group Ltd. founder and chairman Andrew Forrest in April for unexpectedly inviting China’s consul-general for Victoria, Long Zhou, to address a news conference by the country's health minister. In the lead-up to this event, Australia had been lobbying for a probe into the origin of COVID-19, in response to which Chinese Ambassador Cheng Jingye floated a Chinese consumer boycott of Australian products, including agriculture, education and tourism.
Rather than being about geopolitical issues, S&P Global Platts' Singapore-based iron ore associate editor Jun Kai Heng said in an email interview that China's new ports give Vale more flexibility in sales as it seeks to move more volumes toward China.
He pointed out that Australian and Brazilian iron ore are "not exactly inter-replaceable" and also have "rather significant pricing differences," though Vale's shipments have been picking up from a weak first half.
While the South China Morning Post also said China's four new ports would aid Chinese producers in Africa who use the Valemax vessels, also called Chinamax, Heng said that, judging from the spot market and end-user usage, their exports would be "very nominal at best in terms of volumes."
Australian advantage
Platts reported on July 27 that China had become a net steel importer for the first time in 11 years despite record daily crude steel production for the month, indicating the extent of the Asian giant's stimulus-fueled economic recovery, which has supported rising domestic steel prices.
The Platts 62% iron ore IODEX benchmark averaged US$102.95/t CFR in June, the highest monthly average since August 2019. Australia's producers have benefited, particularly as the shipping expert said freight from Australia to China is only a third of that from Brazil to China on normal Capesizes.
The latest resources quarterly from Australia's Chief Economist said that with the country's iron ore production now returning to the strong levels of late 2019, and with the Australian dollar having depreciated sharply, export earnings are estimated to have reached a new record of A$103 billion in fiscal 2020.
Export volumes are expected to increase from an estimated 852 Mt in fiscal 2020 to 912 Mt by fiscal 2022.
Just before the recent spate of earnings reports, Platts’ cFlow vessel tracking tool's analysis of June quarter shipments estimated that while major Australian iron ore producers were on track to meet their export guidance for fiscal year or calendar year 2020, Vale is still behind schedule.
Platts estimated iron ore shipments from Vale, Rio Tinto, BHP Group, Fortescue and Roy Hill Holdings Pty Ltd. in the second quarter of 2020 at about 287.7 Mt, with their combined total in June reaching an 18-month high of 104.11 Mt.
Though Platts' cFlow estimated Vale's seaborne exports from Brazilian ports in the second quarter at 61.94 Mt, up 14.2% from the previous quarter and up 1% from the prior-year quarter, a weak first quarter saw its export volumes in the first half fall 9.2% year over year to 116.19 Mt.
Meanwhile, Roy Hill achieved four consecutive weekly rises in June and hit a historical high in the week starting June 21, and is expected to ship 55 Mt to 60 Mt in 2020, sources told Platts.