China's largest shipping company Tuesday said the global dominance of the three major iron ore producers “could be very harmful to the industry”.
One of Cosco’s senior executives detailed his concerns about the growing shipping power of Vale, BHP Billiton and Rio Tinto at a conference in London.
“I believe nobody sitting in this room could be in a dominant position in dry bulk, even Cosco,” said Simon Young, executive deputy director of the government-owned China Ocean Shipping (Group) Company’s research and development centre.
“Only those who can control exports of iron ore and also those who have larger ship-operating capacity — they’re the ones in the dominant position. This could be very harmful to the industry.”
Speaking at the World Dry Bulk Shipping Summit in London, Mr Young’s comments were clearly aimed at Vale, BHP Billiton and Rio Tinto, which between them control 70% of global seaborne trade in iron ore, which last year hit 845m tonnes.
The three majors “had a strong bargaining power” because they sold iron ore and were also active in the shipping markets, Mr Young said on the conference sidelines. But he declined to elaborate further about Cosco’s concerns, saying only that all shipowners and operators needed to be wary, not just his company.
The comments reflect rising Chinese distrust over all three miners’ plans to take greater control of freight costs, as well as merger plans between BHP Billiton and Rio Tinto for their iron ore operations in Western Australia.
Mr Young said that Vale, the world’s largest iron ore producer, was “the easiest to do business with”.
Niels Wage, vice-president of freight for BHP Billiton Marketing, which controls shipping operations for the world’s largest mining company, told Lloyd’s List that he did not think Mr Young’s comments were fair but would not comment further.
BHP Billiton operates between 10 and 20 capesize, 10 and 20 panamax and 10 and 15 handymax vessels at any one time, Mr Wage said.
Star Bulk Carriers director Koert Erhardt said BHP, Vale and Rio Tinto were more closely integrating with shipping, and added: “The role of shipowner is completely changing. We’re not sure who is doing what and when, making life more complicated.”
China has yet to settle annual iron ore contract prices with the miners, with at least one contract, for Rio Tinto, expiring Tuesday. Vale has taken advantage of depressed asset prices to embark on a capesize buying spree in 2009, and said in May that it had 20 vessels under its control and 12 contracts of affreightment. It also plans to own or operate a fleet of as many as 20 very large ore carriers by 2012. Rio Tinto also has bulk carriers on order.
Mr Young also attacked speculators in the dry bulk derivatives market, saying that too many banks and funds had been getting involved in the sector. He said their role had skewed forward freight agreements, with the dry market valued at more than $150bn in 2008.
Tom Beney, from commodities giant Cargill, which along with BHP is a significant freight derivatives trader, disagreed with the Cosco assessment.
Mr Young highlighted the global dry bulk market’s reliance on the world’s third-largest economy for economic revival.
“China will bring us more,” he told delegates, highlighting rising fixed asset investment, “generous” Chinese bank lending and a 10% year-on-year boost in car sales.
Source: Lloyds List
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