Vale opens Malaysia port to lower logistics costs

Vale inaugurated a US$1.4 billion port terminal in Malaysia as the world's biggest iron ore producer seeks to cut costs of shipping to Asia from Brazil with prices at five-year lows.

The facility on the Malacca Strait to stock and blend supplies would help Rio de Janeiro-based Vale compete against BHP Billiton and Rio Tinto Group in Australia, said Paul Gait, an analyst at Sanford C Bernstein.

Up to last month, eight Valemax vessels - the biggest ore carriers that can haul as much as 400,000 tonnes - had already called at the Teluk Rubiah site to discharge cargoes, with five smaller Capesizes loaded, Vale said.

"Vale is significantly farther away from the main centres of demand than its Australia competitors," Gait said. "What Vale can do is to lower the apparent cost of logistics, shrink the world, if you will, and make distance not matter so much."

Iron ore tumbled 44 per cent this year as increased supplies from Vale, BHP and Rio created a glut, prompting producers to squeeze costs to preserve margins.

The port is Vale's latest initiative to erode the geographic disadvantage it has compared with Australian competitors, which have lower shipping costs due to their proximity to Asian buyers. Valemax vessels do not yet have full access to ports in China, the world's biggest buyer.