7 MIN. DE LECTURA
(Repeats story that ran earlier in the day, with no changes to text) --Clyde Russell is a Reuters columnist. The views expressed are his own.--
By Clyde Russell
LAUNCESTON, Australia, Sept 3 (Reuters) - There was maybe more than a touch of hubris in Rio Tinto boss Sam Walsh's recent comment that it's time for other iron ore producers to "really feel the consequences" of the current low price.
The chief executive of the world's No.2 iron ore miner was speaking after his company's first-half results last month, basically delivering the message that Rio Tinto is going to keep going full-steam ahead on its iron ore expansion plans.
Walsh, along with the bosses of top iron ore miner Vale and No.3 BHP Billiton, is betting that their low-cost, high volume model will force smaller competitors to the wall, leaving them the undisputed kings.
Perhaps he should have a word or two with the chief executives of coal miners, which, oddly enough, includes himself given Rio Tinto's extensive coal assets.
When the price of both thermal and coking coal started to decline in mid-2011, the word from the industry was that this wasn't too big a surprise, but no need to worry as Chinese demand will ensure prices don't fall too far, and all the new capacity brought on and planned will be profitable.
With spot thermal coal at Australia's Newcastle port , an Asian benchmark, dropping from its post-2008 recession peak of $136.30 a tonne in January 2011 to a low of $110.28 that year, it's easy to see why the concern was muted.
Fast forward to the middle of 2013 and the story had changed slightly, to one of Chinese demand is still there, but now there is global oversupply because of shale gas displacing coal in power generation in the United States.
By September 2013, Newcastle coal was down to $76.70 a tonne and the industry was saying it couldn't fall much further as this would cause loss-making mines to shut down.
But fall further it did, dropping to $67.89 a tonne by July 25 this year, and it was still below $70 a tonne as of last week.
The coal industry is now facing the brutal reality that low prices are here to stay, irrespective of how much demand from top importers China and India may increase.
This is simply because new mine capacity ran ahead of demand growth, and miners chose to boost supply even further in the face of lower prices in a bid to lower unit costs.
The net effect was more output, lower prices and a struggling industry.
Even if coal demand does rise to exceed existing supply, prices can only rise so far before the supply that has left the market, such as that from North America, returns.
Iron ore is now in a structural oversupply situation, which like coal, is likely to get worse in coming years.
However, Vale, Rio Tinto and BHP hope to make good profits as competitors leave the market.
The script is so far going according to plan, but the big three miners may have opened a Pandora's Box, because as the coal experience shows it's really hard to arrest prices once they start dropping, especially if supply is growing rapidly.
Asian spot iron ore .IO62-CNI=SI fell to $86.70 a tonne on Tuesday, the lowest in two years and less than half of the post-2008 peak of $191.90 in February 2011.
China, which buys about two-thirds of global seaborne iron ore, is still showing healthy growth in imports, with total imports up 18.1 percent to 539.68 million tonnes in the first seven months of the year, compared to the same period last year.
The impact of the higher volumes from Rio Tinto's and BHP's Australian mines shows up with imports from Australia rising 33.4 percent to 306.75 million tonnes, while those from Brazil are up 13.5 percent to 94.56 million tonnes.
This shows that the lower-cost ore from Australia and Brazil is displacing more expensive imports, and also Chinese domestic output, just as it should in an efficient market.
Problem is that the big three miners appear not to be able to help themselves, and are bringing on way more capacity than even China is likely to be able to absorb.
Rio Tinto aims to boost output to 295 million tonnes this year, from 266 million last year, and plans to reach 360 million by 2015.
BHP produced 225 million tonnes in the year to end June 2014, plans to increase this to 245 million tonnes in the current financial year and to 290 million tonnes in the next few years.
Vale wants its output to jump from 306 million tonnes last year to 450 million by 2018.
Adding to this, number four-ranked Fortescue Metals Group aims to boost output from its Western Australian mines to 160 million tonnes, from about 125 million in the past financial year.
Billionaire Gina Rinehart also plans to start her 55-million-tonne-a-year Roy Hill mine in Australia ahead of the planned September 2015 commencement.
Adding the expansion plans of these five companies together brings an additional 393 million tonnes to market in the next few years, just from Australia and Brazil.
Anglo American is also likely to bring its 26.5 million tonne a year Minas Rio project on line within that time period, and there is also the possibility of more supply from West Africa.
That's a lot of new iron ore to displace relatively little high-cost production.
Chinese imports for July from Australia and Brazil were about 64.5 million tonnes together. All the imports from every other country together were about 17.6 million tonnes.
Assuming July's imports, which were the third-highest on record, are maintained, it implies that the rest of the world's shipments to China would be around 211 million tonnes a year.
This is roughly half the new supply expected from Australia and Brazil in the next few years, meaning that the major iron ore miners are betting not only that they can displace everybody else from the seaborne market, but also force Chinese domestic output to decline by about 200 million tonnes, on a 62 percent iron content basis.
That would equate to shutting about 40 percent of China's domestic iron ore capacity, which is a big call for the global miners.
The problem for Vale, Rio Tinto and BHP is that for now they can eat the lunch of their smaller competitors.
But when they finish that, they will have to start eating each other, just as the coal industry has done.
This means the iron ore price may fall by more than they expect, and stay down for longer.
Disclosure: At the time of publication Clyde Russell owned shares in BHP Billiton and Rio Tinto as an investor in a fund. (Editing by Muralikumar Anantharaman)