Vale inaugurates $1.4bn Malaysia port Vale's iron ore mine in Barão de Cocais, Brazil Vale, the Brazilian miner, has launched a bold assault on Australian rivals by opening a $1.4bn port terminal in Malaysia designed to cut the cost of selling iron ore to China, the world's biggest consumer. The deepwater facility, located midway between Kuala Lumpur and Penang on the Strait of Malacca, is an attempt to reduce the cost disadvantage Vale faces against BHP Billiton and Rio Tinto due to the longer distance required to ship iron ore from Brazil to energy-hungry markets in Asia. Analysts said it also would allow Vale to blend various types of iron ore for sale to different markets in Asia, rather than battling to try to secure better prices from China for its core high-quality iron ore as prices tumble in the spot market. Iron ore prices have fallen by more than 40 per cent so far this year to five-year lows as supply from the three miners - the world's biggest producers - has overwhelmed softening demand growth. China buys about a quarter of its iron ore from Vale alone, while the mainland accounts for 49.6 per cent of the company's total iron ore sales with Asia as a whole representing 65 per cent, Vale said. However, logistics has been a big challenge, since Vale's biggest mines are located more than 10,000 miles away from China while BHP's and Rio's are closer. Vale built its own fleet of very large ore carriers, known as Valemax vessels, in 2011 in a bid to reduce shipping costs, but the ships have largely been barred from entering Chinese ports due to opposition from the China Shipowners" Association as well as safety concerns. The new port facility, at Teluk Rubiah, is designed to work around that problem by accommodating Valemax vessels, each capable of carrying 400,000 tonnes of iron ore. They will transport the ore to Malaysia, from which it will be redistributed to China and other Asian countries in smaller vessels. "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," said Murilo Ferreira, Vale's chief executive. The facility has five stockyards at which different grades of iron ore can be blended and customised to the needs of regional customers. This will allow Vale to tackle a second problem that has dogged its efforts to sell more profitably in Asia, according to Ian Roper, Singapore-based analyst at broker CLSA. Since 2010, when miners and steelmakers agreed to abandon a 40-year-old pricing mechanism based on long-term contracts, iron ore prices have shifted from long-term contracts to a spot market in which pricing is more immediate and transparent. That has enabled buyers in Asia to squeeze lower prices out of suppliers such as Vale, which had made significant profits out of selling, at a premium, higher-grade iron ore than its Australian rivals typically supply, Mr Roper said. Mr Roper said Vale would now be able to blend a slightly lower quality iron ore for the Chinese market, closer to the quality of ores sold currently by Australian rivals. "It's essentially about giving them the option not to be forced to sell their higher-quality product into China at a discount," he said. Having the option not to sell high-quality ore into Chinese mills who don't value it, Vale clearly believes that the people who do value it - Japan and Korea - will go back to paying higher premiums.