Brazil Iron Ore Mining Market Overview and Forecast to 2020: Trends, Fiscal Regime, Major Projects, and Competitive Landscape
- Published: November 2011
- Region: Brazil
Brazil's mining sector is poised for continued, though slower, growth as weaker foreign demand weighs on Brazilian exports. The country's large untapped reserves and relatively small mining sector relative to regional peers make it a compelling sector growth story and should continue to attract investment despite macroeconomic uncertainty. Iron ore production will be the key driver of mining sector investment, but we expect significant growth in several base metals as well, providing opportunities for mining companies and investors. Investments into infrastructure in advance of the 2014 FIFA World Cup and 2016 Olympics will not only help support demand for raw materials, but also enable more efficient transport of mineral resources.
Brazil's mining sector is poised for a period of strong growth as domestic and foreign demand for mineral resources spurs investment. The sector remains relatively small as a percentage of GDP compared to regional mining peers such as Chile and Peru. However Brazil's large untapped reserves and generally favorable business environment make it a compelling sector growth story. Iron ore production will be the key driver of mining sector investment, but we expect significant growth in several base metals as well,
providing opportunities for mining companies and investors. Investments into infrastructure in advance of the 2014 FIFA World Cup and 2016 Olympics will not only help support demand for raw materials, but also enable more efficient transport of mineral resources.
We forecast that Brazil's mining industry will contract in 2012, due primarily to lower than average iron ore prices for the year. We expect the industry's value to reach US$67.2bn in 2016, up from US$51.0bn in 2012. Our below consensus view on Chinese economic growth has caused us to revise our forecasts for iron ore production downward. This has reduced our growth forecasts for the sector as a whole with average annual industry value expected to increase 4.8% on average between 2012 and 2016.
Continued Growth In Iron Ore Production Brazilian iron ore miner Vale will continue to dominate the mining industry well past our forecast period.
The company's performance in 2011 supports our view that iron ore is driving sector growth. While the company has recently moderated its view towards sustained iron ore demand growth in China, the People's Republic will remain the world's largest steel producer in the coming years even as output growth slows. We expect China will be the largest importer of Brazilian iron ore for the foreseeable future. We have lowered our growth forecast for total iron ore output but see production rising to 482mnt
(mn tonnes) by 2016, as companies bring multiple large projects online. We forecast average growth over our 2012-2016 forecast period to be 4.1% a year.
Iron Ore Dominates Mining Exports Vale's 2011 iron ore production came in at 322.6mnt, a y-o-y increase of 4.8%, as it increased output from the Carajás mines in Brazil. Production slowed in Q112 as harsh weather impacted operations.
However iron ore will be the mainstay of the company's growth, with the Carajás Serra Sul mine expected to reach 90mntpa (mn tonnes per annum) in 2014. Vale's strong project pipeline both domestically and increasingly abroad, will help maintain its position as one of the world's leading iron ore miners.
Regulatory Environment As we have seen rising mining taxes in regional competitors, we expect higher taxes to be a theme in Brazil in 2012. We believe the new structure currently being considered will increase taxes from 2.0% to 4.0% of company revenues. This compares with revised tax schemes in Peru and Chile, where mining companies are taxed on operating profits in order to remain competitive. However, we do not believe this would make Brazil significantly less competitive relative to its regional peers, as the 4.0%
rate is not overly burdensome. Government efforts to increase contributions from the mining sector are in line with a recurring global theme we have seen of late, as countries attempt to benefit from elevated metal prices and attractive long-term market fundamentals.
Key Players Brazil's mining industry is dominated by several domestic companies. Most notable is Vale, which operates in 14 Brazilian states and is expanding its presence internationally. Vale is also Brazil's largest logistics operator, with an extensive network of railroads and ports. Other significant Brazilian companies include Votorantim Group, Mineração Rio do Norte and Companhia Siderúrgica Nacional.
Although large diversified global miners such as BHP Billiton and Rio Tinto operate in Brazil, they are not major players in the sector. That said, Anglo American is developing several nickel mine projects that will substantially boost its market share. Key international firms include US-based Jaguar Mining,
which explores and extracts gold in Minas Gerais state, and Australian company Mirabela Nickel, which operates the Santa Rita nickel sulphide mine in Bahia state. SHOW LESS READ MORE >
BMI Industry View 5
SWOT Analysis 8
Brazil Mining Sector SWOT Analysis 8
Brazil Political SWOT Analysis 9
Brazil Economic SWOT Analysis 10
Brazil Business Environment SWOT Analysis 11
Global Mining Outlook 12
Table: Recent Tax Increases 15
Table: Largest Coal Projects 17
Table: Major Frontier Mining Projects 18
Americas Mining Sector Outlook 19
Table: Key Central America And Caribbean Mining Projects 21
Market Overview 24
Iron Ore To Drive Mining Sector 24
Table: Brazil – Mining Industry Value & Production, 2009-2017 27
Industry Forecasts 28
Iron Ore: Growth To Continue Amid Growing Challenges 28
Table: Brazil - Key Iron Ore Mining Investments 30
Table: Brazil - Iron Ore Production, 2009-2016 31
Bauxite: Output Heading Higher Despite Market Weakness 32
Table: Brazil – Mine Bauxite Mine Expansion Plans 34
Table: Brazil – Bauxite Production Forecasts (mnt), 2009-2016 35
Nickel: Promising Growth To Play Out 36
Table: Brazil - Key Nickel Projects 36
Table: Brazil - Nickel Production, 2009-2016 37
Tin Output Set for Modest Gains 38
Table: Brazil – Tin Production Forecasts (kt), 2009-2016 39
Regulatory Development 40
Table: Key Mining Investments 41
Americas Business Environment Ratings 42
Table: Americas Mining Risk/Reward Ratings 43
Competitive Landscape 46
Company Profiles 48
Anglo American 48
Table: Anglo American's Key Financial Data, 2006-2011 51
Financial Data 55
Table: Alcoa - Financial Data, 2005-2011 55
Company Data 59
Table: Vale - Financial Data, 2005-2011 59
Commodity Strategy 60
Monthly Metals Update 60
Iron Ore: No Return To Highs 62
Steel: Limited Rebound Ahead 64
Aluminium: Further Gains Ahead 65
Copper: Relative Outperformer But Still Weak 67
Lead: Heading For Weakness 69
Nickel: Gains To Disappear 70
Tin: Major Gains Behind, But Outperformance To Continue 72
Zinc: Little Room For Optimism 73
Table: Select Commodities - Performance & BMI Forecasts 74
Business Environment Ratings Methodology 75
Table: Mining Business Environment Indicators 76
Table: Weighting Of Components 77
BNP Paribas Cardif
Grupo Segurador Banco do Brasil e MAPFRE
QBE Insurance Group
Zurich Santander Insurance America