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Monday, 10 November 2014

Vale opens $1.4bn deepwater port terminal in Malaysia

Brazilian mining company Vale has opened a new $1.4 billion port terminal in Malaysia aimed at reducing its costs to sell iron ore into Chinese markets. Located on the Strait of Malacca between Kuala Lumpur and Penang, the deepwater port is part of a growing trend for large-scale developments that offer economies of scale for shipments.

The new Teluk Rubiah facility has capacity to carry 400,000 tonnes of iron ore will be used as a hub to redistribute cargoes to China and other Asian countries.

“Teluk Rubiah is a cornerstone of Vale’s business strategy . . . to enhance the company’s capability to supply iron ore more efficiently to the Asian markets,” Murilo Ferreira, chief executive of Vale said.

Competition concerns drive greater scale

The investment is driven by competition concerns, according to Paul Gait, an analyst at Sanford C. Bernstein, who sees a trend toward larger hubs that operate at greater efficiency.

"Vale is significantly farther away from the main centres of demand than its Australia competitors," Gait said, citing Vale’s main multinational rivals BHP Billiton Ltd. (BHP) and Rio Tinto Group.

"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."

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