* Iron ore majors accelerating expansion projects
* Strategy to boost output winning market share
* Higher-cost, less competitive suppliers in trouble
* By 2015 top producers to account for over 80 pct of world
iron ore trade
By James Regan
SYDNEY, July 29 A faster-than-expected increase
in iron ore production by the world's biggest miners in
Australia and Brazil this year is pushing less efficient smaller
suppliers of the steel-making raw material to the edge.
From Europe to Australia to the Middle East, smaller miners
in the once-lucrative iron ore business are cutting output or
shutting altogether despite rising demand, while a few mega
miners are taking a bigger share of the $130 billion seaborne
iron ore market.
Big miners such as Vale, Rio Tinto
and BHP Billiton are flooding the world
with hundreds of millions of tonnes of cheaply mined ore,
driving down prices by almost a third this year.
The price fall is squeezing higher-cost producers, while the
big miners are feeling less pain due to ever-lower costs of
production from economies of scale and increased sales. Barriers
to entry are also increasing, shutting out all but those with
access to the biggest ore deposits.
"Iron ore is fast becoming a big boys game, with little room
for the small or marginal producer," says Gavin Wendt of
Australian consultancy MineLife.
By 2015, major producers in Brazil and Australia will
account for 1.15 billion tonnes or 83 percent of world seaborne
ore trade, according to Australian government data, up from 71
percent just three years earlier.
Ken Brinsden, managing director of Australia's
12-million-tonns-per-year Atlas Iron says
"unprecedented" iron ore output from the majors could strip away
up to 85 million tonnes of iron ore annually from suppliers in
China and elsewhere.
At today's prices, around 200 million tonnes of Chinese
domestic production alone is unprofitable, James Wilson, a
mining analyst with Morgans Stockbrokers estimates.
"The likes of BHP and Rio Tinto are just too competitive to
take on in this market," says Wilson.
Macquarie Bank research shows use of domestic ore by Chinese
steel mills fell to 241 million tonnes in the first quarter of
2014, down 40 million tonnes the fourth quarter of last year.
That's not surprising, given only a third of China's
domestic mines have direct links with the mills, leaving the
majority to compete in the price-driven marketplace.
The big miners, meanwhile, are beating forecasts as they
churn out more ore. BHP expects to produce 245 million tonnes
this year, up 9 percent on last year and well ahead of
Rio Tinto is also boosting output 9 percent to 290 million
tonnes this year, which analysts say could set the stage for a
drive to its next goal of 360 million tonnes.
Vale is aiming for 312 million tonnes and produced a record
amount in the second quarter to June 30.
RIVALS FALL AWAY
Chinese customs data shows a significant drop in imports
from countries that are smaller in the seaborne iron ore market
even though total exports are still rising.
"Higher cost producers are being displaced by lower costs
producers like Australia and Brazil," Vale said in response to
questions by Reuters. "This is already happening and will
increase over time."
Exports from Iran - the world's eighth-biggest supplier on
the seaborne market - fell by a third in June from a year ago to
just 1.2 million tonnes, according to Iranian industry data.
In Sweden, Northland Resources, whose long-term
strategy was to develop its Kaunisvaara mine in Sweden to reach
a yearly production rate of 4 million tonnes of iron ore
concentrate, has been forced into a company-wide reorganisation.
Commissioning of a second processing line to produce a
high-quality iron ore concentrate was placed on hold this month.
In Australia, the 1.7 million-tonnes-per-year Cairn Hill
mine, started in 2010 when iron ore fetched twice today's price,
was shut after costs of $104 a tonne overran selling prices.
Around Australia other small miners once hoping to make
inroads into the seaborne-traded market but now struggling
include Pluton Resources, Sherwin Iron Ltd
and Noble Group's Frances Creek mine.
Kimberley Metals Group, an exporter of more than 150,000
tonnes a month to China, is cutting production by 25 percent at
its Ridges mine in response to plunging ore prices.
Similarly, in Canada Labrador Iron Mines Holdings
has come to a halt, warning it otherwise faced further losses.
($1 = 1.0741 Canadian Dollars)
(Additional reporting by Stephen Eisenhammer in Rio de Janeiro
and Silvia Antonioli in London; Editing by Richard Pullin)