Rio Tinto distances itself from fleet expansions

Rio Tinto distances itself from fleet expansions

Australian miner says owned vessels will account for only 5% of its chartering business

Max Tingyao Lin, Lloyd's List, Wednesday 25 April 2012

ANGLO-Australian Rio Tinto has distanced itself from other mining giants’ huge fleet expansion plans, insisting that despite having 15 newbuildings scheduled for delivery over the next two years its own vessels will only account for a small percentage of its shipping needs.

Speaking at a BIMCO conference in Singapore, Rio Tinto Marine chief operating officer Michael Harvey played down concerns raised by the audience that Rio Tinto’s expansion could be similar to Brazilian miner Vale’s newbuilding programme of 35 very large ore carriers to add to its existing fleet of capesizes.

A fear from shipowners is that increased competition for cargo as more miners expand their fleets will drive down freight rates for large bulk carriers even further and therefore squeeze many smaller traditional shipowners out of business.

However, Mr Harvey sought to play down those worries. “We need to manage our physical risks. We are only buying the vessels we have trouble getting [from the market] or the vessels in uncompetitive markets,” he said.

“We’ll always be a big charterer. [Even after the addition] our fleet will only be able to meet 5% of our charter demand.”

Rio Tinto’s orderbook will add 15 dry bulk carriers to its fleet of five 90,338 dwt post-panamax bauxite carriers in the next three years, mostly to meet this demand, according to Mr Harvey.

The new vessels will include eight 205,000 dwt iron ore carriers, three 250,000 dwt ore carriers, two 88,000 dwt bauxite or coal carriers and two 68,000 dwt caustic soda carriers.

Although his company is operating on a “competitive commercial” basis, Rio Tinto will not charter out its vessels except for short term contracts, according to Mr Harvey.

Mr Harvey also said Rio Tinto has no plan to order more vessels aside from existing orders, citing a weak, volatile dry bulk market resulting from overcapacity.

Instead of driving down rates, and suffering from volatilities and uncertainties, “what we want to see are competitive and sustainable rates”, he added.

“Rates today are not sustainable [as they are too low]…what we really want is to use our vessels for 25 years, then recycle,” said Mr Harvey.

In comparison to Rio Tinto, rival Australian iron ore miner BHP Billiton only has a couple of vessels in its owned fleet and uses the chartering market almost exclusively.

Brazilian miner Vale has a fleet of owned bulk carriers but its fleet expansion plans for 35 owned and chartered-in 400,000 dwt VLOCs has attracted a huge amount of attention over the past year or two as they have started to deliver into service from Asian shipyards.

They were originally ordered when freight rates were sky-high for capesizes during the shipping boom of 2007-2008 and the idea was to cut costs; now that capesize rates are weak, Vale has been pushing the environmental advantages of large vessels as they produce less emissions.