China banned a giant new class of ship from its ports on Tuesday, a move that checks efforts by mining giant Vale SA to cut the cost of shipping iron ore to its largest market and risks raising trade tensions with Brazil.
China's trade ministry said it had banned Vale's 400.000-deadweight-ton Valemax vessels, along with other giant freighters and tankers, to protect its own ocean-freight industry. Plunging shipping rates have slashed shipping company revenue.
The China Shipowners Association and major steelmakers have said the Valemaxes, some of the largest ships afloat, could be a Trojan horse, allowing Vale to hold out the promise of lower transport costs as a cover for what they see as its true goal: dominance of the world iron-ore market.
Vale is the world's No. 2 miner and provides more than a quarter of all seaborne trade in iron ore, the main ingredient in steel. China is the world's largest steelmaker.
The giant ships are a key part of Vale's efforts to compete with Australian miners BHP Billiton and Rio Tinto, whose mines are closer to China, the biggest iron-ore consumer.
China's decision suggests Vale may have made an unwise and costly investment in one of the most talked-about shipbuilding ventures of the past decade.
No Chinese ports have regulatory approval to receive dry bulk carriers of more than 300.000 tonnes. The Dec. 28 arrival of the Berge Everest, a 388.000-deadweight-tonne Valemax, in China's port of Dalian carrying Vale ore from Brazil was probably a bureaucratic fluke, shipping industry sources said.
The Berge Everest was the first Valemax to visit a Chinese port. Vale and shipping company partners with long-term contracts are building 35 of the Valemax giants for an estimated 4.2 billion dollars in Korean and Chinese shipyards.
This is really weird especially since most of them have been built or are going to be built in China, said Bernardo Lobao, steel and mining analyst at Studio Investimentos, a Rio de Janeiro-based investment fund.
This is a real tug-of-war and China is playing very tough, he added. China's attitude is pretty amazing when you consider that Vale went against its own government that wanted the ships built in Brazil and decided instead to build them in China to please its steelmaking clients.