Brazil's Vale opens Malaysia port in bid to cut freight costs
By Stephen Eisenhammer
RIO DE JANEIRO Nov 7 (Reuters) - Brazil's Vale SA on Friday inaugurated a $1.4 billion port in Malaysia able to receive and blend iron ore from its mega-ships, an important step in the miner's battle to cut transportation costs to the crucial Chinese market.
Brazil's distance from China - which accounts for nearly 70 percent of the global seaborne market for iron ore - has been a distinct disadvantage in Vale's attempts to compete with closer Australian rivals BHP Billiton Plc and Rio Tinto Plc .
The port in Malaysia, as well as the giant ships known as Valemaxes, are part of a plan to address the problem. Its urgency has grown this year as the price of iron ore has tumbled 40 percent.
Vale said in a statement that the Teluk Rubiah terminal is able to receive and export 30 million tonnes of iron ore per year and will act as a "strategic point for the company in Asia to attend to our clients in the region."
Such a facility is particularly important as a two-year-long ban on Valemaxes docking at Chinese ports remains in force. Recent strategic partnerships with major Chinese shipping firms suggest Vale is approaching a breakthrough, but Chief Executive Officer Murilo Ferreira said on a conference call last week that it was still not fully resolved.
Teluk Rubiah and the Valemaxes should shave $3 to $5 per tonne from costs, according to Andreas Bokkenheuser, an analyst at UBS. The broker estimated it costs Vale $67 a tonne to produce and get ore with 62 percent iron content to China, with freight accounting for 33 percent of the amount. The iron ore spot price .IO62-CNI=SI was 75.50 on Friday.
The port also enables Vale to blend iron ore from its different mines to a quality that generates the most value. The company has long complained the market does not add enough value to its premium higher-grade iron ore from its Carajas mine in the Amazon.
At Teluk Rubiah, Vale will be able to blend this ore with less high-grade material to get what it says will be a better overall price. Continuación...