China Merchants Energy Shipping (CMES) has signed an important transportation contract worth at least $2.8 billion for the Simandou iron ore project. This 25-year contract includes six very large ore carriers (VLOCs), which are expected to have a total value of less than $2.8 billion over the duration of the contract.
Contract Details and Stakeholders
According to a recent announcement, the counterparty in this contract remains unspecified. However, CMES had announced in July that Hong Kong Ming Wah was preparing to sign a contract with China Mineral Resources Group International Supply Chain, which holds the shipping rights for Simandou iron ore. At that time, Hong Kong Ming Wah had transported approximately 600,000 tons of cargo related to the Guinea iron ore project.
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New Fleet Construction and Its Impacts
This contract coincides with China Merchants' efforts to expand its new VLOC fleet. In July, CMES ordered six iron ore carriers with a capacity of 343,000 tons for a maximum value of 4.93 billion yuan ($728 million) at a yard controlled by its sister company, China Merchants Industry Shipbuilding. These vessels have been specifically designated for long-term commodity contracts, with their delivery scheduled for 2029 and 2030.
This order marks CMES's first move towards a new VLOC fleet in over a decade and follows the order of 10 Valemax vessels in 2015. The Simandou project, once completed, could produce up to 120 million tons of high-quality iron ore annually, and the VLOC capacity controlled by China has become a prominent feature in Guinea-China trade.
Given these developments, the new capacity is expected to reduce cargo from traditional shipping markets, and this contract could strengthen China Merchants' position in the global iron ore market.
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