Workers inspect imported iron ore at the Rizhao port in Shandong province. Provided to China Daily

Some Chinese steel firms say move will cut risk of rising freight rates

Vale, the world`s largest iron ore producer, is still considering building a distribution center in China and waiting for regulatory approval as part of its plans in the country, a top company executive said on Wednesday.

Vale could set up a distribution center in China but it has to obey the government rules, Jose Carlos Martins, Vale`s executive director of sales, marketing and strategy, told reporters in Dalian.

"Vale has also made initiatives to build distribution centers in the Middle East and Southeast Asia," Martins said. "We could do it in China We believe it is good for our customers instead of bringing iron ore in vessels from Brazil in a 45-day trip."

"The market itself is to decide if they need (a center) or not," he said. "We work on Chinese rules and we obey Chinese regulations."

In March, media reported that Vale`s distribution center for the 400,000-ton ships may be established at Qingdao, Shandong province.

Vale had planned to build the 16 carriers that are expected to trim costs by 30 percent compared with other small ships and establish a distribution center to help reduce transportation costs.

A Qingdao Port source told China Daily that the plan has been suspended due to opposition from the China Iron and Steel Association (CISA). CISA fears that if Vale builds a distribution center in China, it will disrupt spot market prices.

But some Chinese steel mills regarded Vale`s move as good news as they said it would help avoid risks from rising freight prices and the 45-day shipping period.

Unlike its Australia rivals Rio Tinto and BHP Billiton, Vale needs to transport iron ore from Brazil, resulting in much higher freight costs. Freight costs from Brazil to China are more than twice that of Australian miners.

Industry insiders said Vale needs to stabilize its exports by reducing transportation costs to grab more market share in China from Rio and BHP.

Vale has been considering a series of expansion plans in China, including a new distribution center, the construction of 16 ore carriers to reduce transportation costs between China and Brazil, and the listing plan in Hong Kong.

Vale last week announced on its website that it wanted exposure to Asian capital markets.

Martins told reporters on Wednesday that the company has submitted applications to Hong Kong securities regulators for a listing in the special administrative region.

"For the time being, we will just take the first step. It will be announced step by step," he said.

"The idea of listing in Hong Kong was a way to bring an alternative for Chinese investors in Vale."

Vale will similarly consider Shanghai as the city creates conditions for listing, Martins said.

China`s steel demand growth may also resume at the end of the year after the Chinese government limited power to trim capacity for energy saving targets, he said.

"I see demand slowing for two or three months, then growing again. We need to prepare for growth again by the end of 2010 or in early 2011," he said.

"The measures that the Chinese government is taking to control energy consumption and carbon emission already affected production, but the impact was not that big. We have had no impact from these measures."