​China lifts ban on Valemax carriers

In another blow for Australian iron ore, China has lifted its ban on Valemax iron ore bulk carriers.

Valemax are very large or carriers (VLOC) owned by Brazilian mining giant Vale, and are designed to carry iron ore from Brazil to around the world.

They have capacities ranging from 380 000 to 400 000 short tons deadweight, and are the largest bulk carriers ever built, with draughts of between 22 and 32 metres, due to Brazil’s need to freight more in a single journey due to its distance from many of the main iron ore customers.

China initially banned the carriers over concerns regarding the impact on supply and prices the large cargoes could have, using the ships own deep draught and size as impetus to revoke vessels of this size from docking at mainland Chinese ports in 2012.

Ship owners previously lobbied against Vale's vessels, fearing they would give the company a monopoly over the iron ore and shipping industries.

According to The Financial Review a first Vale ship, carrying 410,000 tonnes, was refused entry to Chinese ports in December 2011 after it breached the 380,000 tonne restriction.

Because of this ongoing ban Vale had used transit centres in Africa and the Philippines to bring ore to China, and is also building a facility in Malaysia to service the region.

However increasing Chinese demand for Brazilian iron ore may be behind the lifting of the ban.

China Cosco has signed a 25 year deal with Vale that involves 14 of the massive Valemax ships, according to the South China Morning Post.

"The current regulation actually already legitimises these vessels to berth at Chinese ports. If you look at how the ban was initiated in the first place, it will be unlikely for the government to make an official announcement with much fanfare that says the ban is loosened," an unnamed executive from state-owned port company told the SCMP.

"Eventually, the ban will be lifted in a quiet manner. You may see a Valemax ship granted approval by a local maritime authority to dock, and that will be it. Officials realised the ban has hurt China's economic interests, pushing up the costs for iron ore imports,” the executive said.

The news comes as Australia's government predicts more pain ahead for the nation's iron ore sector.

In its September quarter report, The Bureau of Resources and Energy Economics (BREE) said global commodity supply had grown significantly over recent years, placing pressure on prices in the medium term.

It said producers will need to continue to focus on managing costs and improving their competitiveness in order to survive downturn in the price cycle.

“A rapid increase in iron ore supply combined with moderating growth in China’s steel production have pushed iron ore prices lower in 2014. Prices have fallen nearly 40 per cent down from around US$130 a tonne (CFR China) in January to US$82 a tonne in September,” BREE said.

While the group said iron ore price volatility is not uncommon, oversupply is now flooding the market.

In Australia alone over 200 million tonnes of new ore has begun export at the same time as China stopped stockingpiling the commodity

To keep up to date with Australian Mining, subscribe to our free email newsletters delivered straight to your inbox. Click here.