Industry Trend Analysis - Competitive Iron Ore Projects To Offset Weak Prices, Domestic Turmoil - JULY 2017


BMI View: Brazil ' s mining industry value will overcome weak iron ore prices and a poor domestic economic and political backdrop to edge higher over the coming years, driven by low-cost iron ore production and strong project pipelines across mineral sectors. Nonetheless, the country ' s mining recovery will be muted compared to regional peers and we highlight political uncertainty as the key downside risk .

Despite two key challenges facing Brazil's mining industry outlook, namely weak iron ore prices and domestic political turmoil weighing on investor sentiment, we expect the country's mining industry value to post a modest recovery over the coming years. We forecast Brazil's mining industry value to edge higher, from USD46.9bn in 2017 to USD48.3bn by 2021, averaging 1.0% annual growth. While this represents a muted recovery compared to neighbouring mining industries, this growth rate proves a notable improvement from the average annual contraction of 11.4% over the previous five-year period.

Brazil's high-quality and low-cost iron ore production will largely offset declining prices, as top miners remain profitable and ramp up output. For instance, in Q117, major domestic miner Vale reported record iron ore production of 86.2 million tonnes (mnt), due to the ramp up at the S11D and Itabiritos projects. The firm remains on track to produce 360-380mnt of iron ore in 2017, which would account for over 80% of Brazil's total output. In Q117, Vale reported C1 cash costs of USD14.7/tonne, well below our iron ore price forecast of USD65.0/tonne for the year and 2021 forecast of USD44.0/tonne ( see 'Iron Ore: Downward Revision On Cooling Chinese Demand', May 11). Additionally, Brazil's strong iron ore project pipeline will support long-term growth. Of Brazil's 32 new projects in our BMI Mines Database, 14 are iron ore projects. More broadly, the government is including mineral exploration assets in the Projeto Crescer tender for the first time, bolstering support for private development of the industry. While limited information on the assets is available and 2018 elections keeps political uncertainty elevated, the Temer administration has moved to address several key concerns for investors around transparency and project lead times ( see ' Concessions Programme Presents Upside To Weak Recovery ' , March 14).

Production Ramp Up To Offset Declining Prices
Brazil Mining Industry Value Growth (% y-o-y) & Global Iron Ore Prices (USD/tonne)
f = BMI forecast. Source: USGS, Bloomberg, BMI

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