SINGAPORE, Feb 7 (Reuters) - Brazil's Vale will begin its iron ore distribution operations in the Philippines this weekend, the Philippine port operator said, from where the world's top miner of the raw material will transfer China-bound ore brought in by big ships.
Vale is taking a more costly route to deliver iron ore to China, its top market, which has barred the miner's giant dry bulk vessels from entering its ports to shield its domestic shipping industry.
The miner has set up a transshipment hub in the Philippines' Subic Bay port using a floating storage vessel which will start operations on Feb. 12. It is also building a $1.3 billion iron ore distribution hub in Malaysia's northern Perak state, which could be ready to handle the giant ships by 2014.
China last week barred Vale's mega ships called Valemaxes -- which at 400,000 deadweight tonnes each are the world's biggest dry bulk carriers -- to protect its shipping sector hit hard by the economic downturn and freight rates that have fallen to their lowest in more than a quarter century.
"When Vale starts full operations on Feb. 12, we expect the SBMA (Subic Bay Metropolitan Authority) to earn some 70 million pesos ($1.64 million) in additional income in the first year alone because of the projected increase in ship calls," Roberto Garcia, chairman of SBMA, said in a statement late on Monday.
Vale's Ore Fabrica, the world's largest dry bulk floating storage vessel, arrived in Subic Bay last week. The 280,000-deadweight-tonne vessel will serve as a platform to transfer iron ore from the Valemaxes to smaller vessels for transport to Asian markets led by China.
A Valemax, Vale Brasil, is expected to arrive in Subic on Feb. 12, Reuters shipping data showed. SBMA said it expects Vale Brasil to dock a day later.
Vale was hoping its planned fleet of 35 Valemaxes would slash its shipping costs to China to help it better compete with Australian rivals BHP Billiton and Rio Tinto .
But some analysts have said the cost of the transshipment centres would unlikely outweigh any savings from using the Valemaxes.
Vale has said 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.
The 388,000-tonne Berge Everest was the first and only Valemax allowed into China, mooring at the Dalian Port on Dec. 28 to unload iron ore that has yet to be sold.
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. ($1 = 42.5650 Philippine pesos)