4 MIN. DE LECTURA
By Stephen Eisenhammer and Marta Nogueira
RIO DE JANEIRO, Nov 12 (Reuters) - Small Brazilian iron ore miners are proving resilient in the face of low global prices, pushing ahead with expansion projects even as that reduces the chance of a quick rebound in prices.
Interviews with five iron ore "juniors" operating in Brazil showed players in this section of the industry, helped by cheap development bank loans and the flexibility to sell locally or abroad, are not being forced out of business at the pace larger rivals hope.
The price of iron ore has fallen 40 percent this year as new capacity from major Australian mining companies entered the market just as Chinese demand growth slowed.
The "big three" in iron ore, Brazil's Vale, Australia's BHP Billiton and Rio Tinto, argue the self-inflicted price drop will drive higher-cost producers out of the market, making it possible to retrieve market share and for the price to rise.
But such a process is complicated. Many predicted a similar process when coal prices dropped last year, but coal mines have been slow to close, keeping prices down.
"It took them (smaller producers) 8-10 years to build the mine, so they're not going to shut it down at the first sign of price weakness," said Andreas Bokkenheuser, analyst at UBS.
"Also in many cases it costs more to shut it down than to operate it in the short term," he added.
In Brazil, 90 percent of production remains profitable at current iron ore prices, according to analysis group CRU. Vale accounts for the majority of that output.
"We still have positive margins at the current price and we are continuing with our expansion plan," Vanessa Ajeje, market manager at private Brazilian producer Ferrous, told Reuters on the sidelines of a conference in Rio de Janeiro.
Ferrous, which currently produces 5.5 million tonnes a year, is in the midst of a $1.2 billion expansion plan to increase capacity to 23 million tonnes by 2017.
Two thirds of this cost is covered by a loan from Brazil's development bank BNDES, which lends money at a subsidized rate. The other third will come from equity.
The big miners estimate between 60 and 125 million tonnes of higher-cost production has exited the market this year. But with total sea-borne market totalling around 1.2 billion tonnes and 160 million tonnes of new production added this year alone, further shutdowns are needed to balance the market.
Moreover, exits will probably slow down unless the price falls further.
"It is likely to become more difficult to push producers out of the market as we move along the cost curve," said Laura Brooks, analyst at Cru.
Miners in Brazil are also helped by the ability to sell iron ore to a large domestic steel industry that, despite experiencing a rough patch now, should grow in coming years.
In the face of lower prices, South American Ferro Metals delayed a major project to expand its current production of 1.5 million tonnes per year, opting instead to pursue a cheaper plan to double production by 2016, again with cheap financing from the BNDES.
The company also decided, due to lower output, to focus on the local market rather than export. Development Director Jose Marcio Paixao said the miner would rekindle its plan to expand to 8 million tonnes per year and export if the price picks up.
"Our mine is right next to Vale's. They know we're not giving up," Paixao said.
A number of companies still in the exploration stage are also pushing ahead, hoping that in the years it takes to start producing ore the price will recover.
"We have to be optimistic, because if not we would already have given up," said Carlos Spier, Brazil manager for Latin Resources Ltd. (Writing by Stephen Eisenhammer; Editing by Alden Bentley)