Australia’s share of China’s iron ore imports may be at risk following the opening of four new ports along China’s coast that can operate berths for extra-large ships, opening up new possibilities for greater imports from Brazil and Africa.
Very large ore carriers operated by Brazilian mining firms – called Chinamax ships because they are the largest ships China’s ports can handle – are bigger than many skyscrapers and can carry half again the cargo of normal iron ore transport ships, up to 400,000 tonnes, meaning they reduce transport costs and delivery time.
Australian miners largely use Capesize ships ranging from 250,000 to 300,000 deadweight tonnage (dwt) to transport their ore to China.
The opening of the four new ports to Chinamax ships will increase competition for Australian mines, which have so far benefited from their closer proximity, with China accounting for nearly 90 per cent of all of Australia’s iron ore exports so far this year.
The four new terminals that can berth ships up to 400,000 dwt are in Rizhao, Yantai and Lanshan in Shandong province, and Sanduao in Fujian province, according to Chinese metals market data specialist Mysteel Global, and add to seven ports in China that can already handle the super large ships.
The move by Beijing to open up new sources of iron ore is seen by traders, analysts and economists as a part of a wider strategy to secure supplies from “stable markets” which do not have political conflicts with China.
Tensions between Australia and China have increased significantly since April after Canberra called for an international investigation into the
origins of the coronavirus,
irking Beijing. China has since clamped down on Australian imports of beef and
while warning its citizens against visiting or studying in Australia.
But despite the tensions, Australia’s iron ore trade with China continues to expand in tandem with China’s rising demand for steel to supply the new infrastructure projects that are part of the government’s stimulus plan to support the economy.
Australian iron ore exports to China rose 8 per cent to A$9.92 billion (US$7 billion) in June, the highest monthly export value on record, according to preliminary data released on Friday by the Australia Bureau of Statistics.
The total value of all Australian iron ore exports in the financial year to June 2020 rose to over A$100 billion (US$71 billion), representing more than a quarter of Australia’s total goods exported.
Brazil mining giant Vale, the third largest diversified miner and one of the top iron producers globally, were behind the orders for the original Chinamax carriers and so are often called Valemax ships. As of March, there were 66 Valemax carriers in operation and two under construction.
The use of the large ore vessels not only allows the shipment of larger amounts of iron ore, therefore lowering logistics costs, but enables Vale to speed up the delivery of iron ore to steel mill customers in China and also increases its ability to blend different grades of iron ore in China instead of in Brazil to meet customer demand, said Mysteel senior analyst Hongmei Li.
“More terminals just make it easier to blend more iron ore in China instead of in Brazil, not about the quantity, but about more prompt service to customers,” Li said.
“It seems that after more than 10 years of initiative, Vale is 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 customising the iron ore blends just as requested.”
Other iron miners with long routes, including those in Africa, would also benefit from the VLOC terminals, Mysteel said, but cautioned that as such miners were a small group, there would not be a sudden flood of iron ore exports to China.
But, according to Mysteel, while Vale and Chinese producers in Africa are set to benefit from the increase in Chinamax capacity, they are unlikely to overtake the world’s top producers in Australia including BHP, Rio Tinto and Fortescue Metals.
Vale’s iron ore production is around 400 million tonnes a year, while BHP, Rio Tinto and
together produce over 800 million tonnes a year.