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

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

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So far, Vale had sunk $4.2 billion into the venture, and it's an investment that was set to pay off: In December 2011, The Berge Everest -- built by China's Bohai Shipbuilding Heavy Industry -- was the first Valemax ship to return to China from Brazil. It docked at China's Dalian Port and delivered a load of nearly 390,000 tons of iron ore.

One month later, in January 2012, China officially banned Valemax ships, along with other super-sized freighters, from entering any of its ports.

"Now, the Chinese government said they couldn't take the [Valemax] ships and that 300,000 tons is the maximum, but there is no objective evidence that there really is such a practical limitation," Lax explains.

No One Believes China

China, commissioned by Brazil, constructed and launched close to a dozen Valemax vessels and successfully berthed one on its return. No one's buying the argument that the country can't accommodate the ships.

According to Mining Media's Engineering and Mining Journal, three Chinese ports are fully capable of receiving Valemax ships: Dalian, Dongjiakou, and Majishan.

So, why such a swift (and perhaps dishonest) turn around?

Well, there is the official reason, and then there's the speculative reason -- a reason widely accepted to be the case by many in the mining industry, according to Lax.

Officially, China has said it issued the restriction in the interest of its own local shipping industry, which, at the time, was suffering from a steep fall in global shipping rates. With shipowners worldwide seeing lower revenues at the time, there's no reason to doubt China's motive behind the protectionist move.

Additionally, the China Shipowners Association -- already very upset by Berge Everest's arrival weeks earlier -- and major Chinese steel makers went on to express their fears that Vale could use these massive tankers to monopolize the global iron-ore industry.
No positions in stocks mentioned.
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