China's ban on large ships is limited to Vale's giant iron ore vessels, shipping sources said on Thursday, clearing up confusion in the maritime community as to whether new government regulations could cover other smaller ships.
The China Shipowners Association provided more details on the rules announced this week to bar dry bulk vessels and oil tankers that exceeded approved port capacities, a move by Beijing to protect the domestic shipping industry.
At present, no Chinese port has regulatory approval to receive ships more than 300,000 tonnes, sparking concerns that dozens of vessels already trading with China could be banned.
The industry group, however, said the rules covered only dry bulk ships that were more than 350,000 tonnes. There are only a few vessels of that size, and all are being used to transport iron ore for Vale, the world's largest exporter of the steel-making ingredient, an industry official said.
"Everyone knows that China can change its mind very fast. It's a game of chess between China and Vale," said Hans Navik, a shipping analyst for Norwegian research group Nena.
Oil tankers of more than 450,000 deadweight tonnes were also prohibited from entering China, the world's top iron ore consumer and the No. 2 oil user, the group said. Industry sources said, however, there were no tankers of that size currently in operation.
"My understanding of the rule is that it is strict and there are no negotiations," Zhang Shouguo, executive vice president of the China Shipowners Association, told Reuters.
"In the future, this rule could be revised or amended. But due to the heavy work load of the ministry, this probably could not be done in a short period of time."
Traders say they believe Beijing will gradually lift the ban on large vessels since it would allow Vale to deliver iron ore more cheaply and give Chinese steelmakers room to negotiate lower prices.
"If steel prices remain low this year, at the end of the day they have to look for cheap iron ore which Vale will be able to supply," said a Singapore-based physical iron ore trader.
China's ban is seen by analysts as a way to protect its shipping industry, which has been hit hard by the economic downturn and falling freight rates. Benchmark shipping rates on Wednesday hit the lowest level in more than 25 years.
The powerful China Shipowners Association adamantly opposed the arrival last year of Vale's new giant iron ore carriers, the world's largest dry bulk ships at more than 380,000 tonnes. The group fears the ships will be used by Vale to monopolize the lucrative iron ore trade between Brazil and China.
Vale said on Wednesday its plan to build a fleet of 35 giant ore carriers, of which six are already in service, had not changed despite China's ban.