BRASILIA: China’s Ministry of Transport has decided to open its doors for 400,000 deadweight ton ships, after a ban lasting over three years that shut Brazil’s biggest miner, Vale SA (ADR) (NYSE:VALE), out of the country.
The four local ports, Qingdao, Dalian, Tangshan Caofeidian, and Ningbo will be authorized to receive the megaships, if technical standards are met, the Ministry of Transport said in a joint statement with the National Development & Reform Commission (NDRC) on Friday,
Vale had introduced its Valemax megaships to reduce its transportation costs for shipping iron ore to China – the world’s biggest market for commodities. However, safety concerns prompted the Chinese government to enforce a ban on the megaships, in the first half of 2012. The ban had halted Vale’s $4 billion strategy to establish itself in Chinese iron ore markets.
In February this year, China issued design guidelines that recognized 400,000 deadweight tons of ships. Meeting these guidelines and standards, Valemax ships can dock at Chinese ports, after a receiving port has applied for permission, according to NDRC.
Falling under the category of Very Large Ore Carriers (VLOC), Vale’s Valemaxes are the biggest bulk carriers ever, and among the biggest ships in service. Taking iron ore to Chinese markets through Valemaxes is likely to save the Brazilian miner $4-6 per ton. The cost savings are expected to come at a particularly tough time for the company, as a supply glut in global iron ore markets has weighed down on the commodity prices, which are hovering around their six-year lows.
Vale stock has fallen 57.91% over the past 12 months, while it has lost 28.48% since the start of the current year. On Thursday, Vale’s American depositary receipt (ADR) gained 1.48% to close at $5.84.
Across the Street, Vale stock is covered by 35 analysts. Eight of them have rated the stock a Buy, while 13 have recommended a Sell. The consensus 12-month target price is $7.27, reflecting a 24.3% upside potential over the stock’s current price.
