Vale opts for scrubbers for 48 VLOC newbuildings

Contract signing ceremony between Polaris Shipping and Hyundai Heavy Industries for newbuildings associated with Vale.  Credit: Hyundai Heavy Industries
Contract signing ceremony between Polaris Shipping and Hyundai Heavy Industries for newbuildings associated with Vale.  Credit: Hyundai Heavy Industries

Vale SA will install scrubbers on all 48 very large ore carriers (VLOCs) that are being built in various shipyards for long-term shipping contracts with the Brazilian miner.

Vale thinks scrubbers are the best means to comply with the International Maritime Organization’s enforcement of a global sulphur limit of 0.5% in marine fuels in 2020.

Solutions include scrubbers, burning low-sulphur fuel oil, and using liquefied natural gas (LNG) as fuel.

The Brazilian mining giant disclosed its decision in its earnings report for the first half of 2018, for which Vale reported a USD1.67 billion net profit.

Forty-seven 325,000 dwt VLOCs and one 400,000 dwt Valemax are currently under construction at Hyundai Heavy Industries, Japan Marine United Corporation, Qingdao Beihai Shipbuilding Heavy Industry, Yangzijiang Shipbuilding, Dalian Shipbuilding Industry, New Times Shipbuilding, and Tianjin Xingang Shipbuilding Heavy Industry.

These ships were commissioned by Polaris Shipping, Korea Line Corporation, H-Line Shipping, NS United Kaiun Kaisha, U-Ming Marine Transport, China VLOC (a joint venture between ICBC Financial Leasing and China Merchants Energy Shipping), SK ShippingPan Ocean, and COSCO unit China Ore Shipping after being awarded long-term contracts to transport iron ore for Vale. These contracts run for 20 or 25 years.

Vale has altered its shipping strategy in recent years, moving from being the owner of a fleet of Valemaxes to obtaining competitive freight rates through long-term contracts of affreightment (COAs) with major ship operators, a strategy the miner defended in its latest financial report.

“We reached an important milestone in the implementation of our strategy to offset the effects of our geographical position on freight rates by concluding the negotiations of long-term COAs with different shipowners,” Vale said.

“Recent shipbuilding market conditions led to competitive prices for the vessels and, consequently, lower freight rates. Combining these effects, average freight rates of the new contracts are about USD5/tonne lower than Vale’s average freight cost.”

Vale said the COAs stipulate that shipments must be made by LNG-fuelled vessels, and equipped with scrubbers, granting further optionality to comply with future regulations.

The new 325,000 dwt VLOCs will have more flexibility to dock at smaller berths at Vale ports and abroad compared with the 400,000 dwt Valemax.

The newbuildings will be able to ship 62 million tonnes of iron ore a year.