Boston, MA -- (ReleaseWire) -- 12/26/2012 -- BMI View: 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.
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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.
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