YSHLF Yangzijiang Shipbuilding Holdings Ltd (PK)

Chinese shipping majors Cosco Group, China Merchants Group and ICBC Financial Leasing Co. Ltd. have placed orders for 30 giant Valemax vessels worth a combined $2.5 billion, people directly involved in the matter said Thursday.

The move will tighten Beijing's grip on iron-ore shipments from Brazil over the next decade and increase pressure on western shipowners struggling to find cargo in one of the industry's longest ever downturns.

The people said the three Chinese shipping behemoths ordered 10 ships each from four local yards—Shanghai Waigaoqiao Shipbuilding, Behai Shipbuilding, CIC Jiangsu and Yangzijiang Shipbuilding—with deliveries scheduled to begin in 2018.

"Despite the collapse in the dry-bulk market, the Chinese are ordering new vessels to effectively control iron-ore freight rates over the next 10 years or so," said Basil Karatzas of Karatzas Marine Advisors & Co., a New York-based maritime adviser. "This will put more pressure on dozens of independent shipowners struggling to cope with record low freight rates."

Valemaxes were introduced to the market in 2010 by Brazilian mining giant Vale SA. The plan was to build around 60 vessels but only 18 were delivered. Vale suffered a blow when Beijing banned the ships from docking at Chinese ports, saying that they were unsafe. In July last year the ban was lifted, but by then Vale had sold or leased the vessels to Chinese owners including Cosco.

Valemaxes can move up to 360,000 tones of cargo. They are twice as big as Capesize vessels, the biggest mass-production dry bulk ships, that move around 180,000 tones.

China is the biggest importer of commodities and its slowing economy is the principal reason for shipping lines' woes. Dry-bulk owners moving such products into the world's second-largest economy currently operate their vessels three times above cost, as imports of cement and iron ore fell 46% and 38% respectively last year in terms of value, according to Chinese customs data.

Dozens of dry-bulk operators have gone bankrupt while others are delaying loan payments to banks, idling their ships en masse, or selling them at token values.

Brokers in Singapore and London said the new Valemax purchases will give Chinese carriers control of around 30% of total iron-ore imports into the country in terms of volumes. Mr. Karatzas said such dominance will keep freight rates under wraps for years.

"At the peak of the market in 2007 and 2008 we used to pay daily freight rates in excess of $200,000 for a Capesize vessel," an executive of one of the Chinese Valemax buyers said. "We are taking steps for this not to happen again when the market recovers."

Daily rates for Capesize ships currently hover below $3,000.

(END) Dow Jones Newswires

March 10, 2016 12:55 ET (17:55 GMT)

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