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Shipping Dispute Between China and Vale (NYSE:VALE) Not About Vessels


China-built ships not allowed in Chinese ports? Like a lot of things having to do with China, there's more to the story.



The world's second largest port has a big problem: It's too small.

Or, more specifically, China's Ningbo-Zhoushan Port says it lacks the facilities and the channel depth to accommodate a new class of super-ships owned by Brazilian iron ore miner Vale SA (NYSE:VALE). With a single vessel capacity ranging from 380,000 tons to 400,000 tons, the ships are the largest bulk-carriers on the ocean today and have created new vessel categories: Chinamax (generically) or Valemax (those belonging to Vale).

Ningbo Port Company Limited is the company that runs the Ningbo-Zhoushan Port. President Wu Jinkun's comments on updating the port were quoted by The Bulletin Panama last week.

Of course we hope that we can be the first port (to receive Valemax ships) …but the construction will require at least two or three years.

Berths need to be widened. Channels need to be dredged. But none of this can start, according to Jinkun, until the port receives finalized permission from The Chinese Ministry of Transportation, as well as approval from the local government and China's National Development and Reform Commission.

The story might sound familiar: In the US, ports scrambling to update themselves in anticipation of the expanded Panama canal -- set to open in mid-2014 -- have announced similar time frames, and have struggled to secure financing from the federal and local governments. (Read more on the problems facing US ports in Double-Wide: Who's Set to Benefit From the Expanded Panama Canal?)

China claiming to be in the same boat, as it were, with US ports is a bit ironic since Vale commissioned the Chinese shipbuilder Jiangsu Rongsheng Heavy Industries to build the first twelve vessels in 2008. Given that China consumes roughly 60% of the global output of iron ore and is the world's largest maker of steel, it would seem self evident that they would eventually have Valemax ships docking at their ports.

No positions in stocks mentioned.
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