Huge 400,000 dwt bulk carriers – otherwise known as Valemax ships – might soon be arriving in Chinese ports if trials with Japanese steelmaker Nippon Steel & Sumitomo Metal Corporation prove fruitful for iron ore supplier Vale.

Being based in Brazil means that Vale's transportation costs for shipping iron ore to Asia are high when compared with other operators, such as Rio Tinto and BHP Billiton – both of whom ship out of Australia.

The Valemax ships have 2.3 times the capacity of Vale's standard 'Capesize' vessels, which currently run between Brazil and China, and are aided by transshipment facilities at Subic Bay, the Phillipines, and a distribution centre in Malaysia. The latter is still under construction, but the ability to transship goods from larger vessels into small ones proves handy for ports unable to accommodate Valemax ships because of shallow waters or regulatory restrictions.

The Valemax ships are designed to service Vale's Asian markets, which accounted for 60% of the company's total sales in 2013.

China accounts for over 60% of the global seaborne iron ore trade, but Valemax ships are prohibited from using Chinese ports, which accommodate ships up to 250,000 dwt. The Chinese shipping industry is lobbying against Valemax carriers because of overcapacity concerns in the shipping industry. However, with other Asian countries – namely Japan, Malaysia, the Philippines and Korea – using them, it's only a matter of time, perhaps, before the Chinese relent.

If the Nippon trials prove a success, the Japanese steelmaker's shipping costs will fall by approximately $400,000 per cargo – and it's that sort of cost reduction that will tempt the Chinese, it is argued.

Source: Forbes.