* Junior miners likely to face funding issues
* Other miners will struggle to respond to growing global demand
* Iron ore prices to remain volatile in the next 6 mths
By David Stanway and Ruby Lian
BEIJING, Feb 29 (Reuters) - Tighter credit and labour shortages will thwart miners' plans to boost iron ore output, global miner Rio Tinto said on Tuesday, joining other majors in playing down concerns the market would soon be oversupplied.
No.2 iron ore producer Rio said the world needed 100 million tonnes of new capacity a year for the next eight years, 600 million tonnes to fill expected demand growth and 200 million to replace lost supply in the seaborne market as mines run down.
"Project delays are occurring because of a range of factors, such as tightened credit, shortage of skilled workforce, longer lead times on major items, and the sheer weight of pending approvals for new project development," Sam Walsh, the head of Rio's iron ore unit, said at an industry conference in Beijing.
Walsh said financial institutions had tightened credit considerably amid troubles in the euro zone, which meant banks were more willing to back majors in projects, but the juniors "would find it very, very difficult."
He added, "If you delve into the detailed expansion project announcements, you will see quite clearly that all of the projects that have been announced haven't come on in the time frame they've announced."
Walsh cited a recent study by contractor WorleyParsons showing that only a fifth of projects announced in 2008 by 13 Australian junior miners as due to commence in 2010 actually met the timeline.
Rio, which is ramping up its iron ore production in Western Australia, said it was confident of its own expansion plan and saw itself supplying a quarter of the 100 million tonnes per year of forecast new capacity.
Rio's comments echo those of Brazilian miner Vale and Australia's BHP Billiton , who have warned rising costs were delaying greenfield projects and huge expansions were needed to replace ageing mines.
Project lead times are also getting extended as miners have to wait longer to secure heavy equipment, Walsh said. But major players can jump the queue because their global supply contracts let them forecast machinery needs so they can be booked in advance.
"I used to say many years ago that it takes five years to bring a project on. I expect that now it is probably taking 10 years," Walsh said, adding that lengthy environmental and government approvals were also slowing projects.
Separately, industry sources also told Reuters it was becoming harder for minnows to get financing from China, as investors were unwilling to pump millions into inferior projects, especially those yielding poorer grades of ore.
One high-profile project delay was Sinosteel's move to halt work on its $2 billion Australian Weld Range iron ore project last year because of problems in developing infrastructure.
MAJOR EXPANSIONS AHEAD
These top three producers, which control around two-thirds of the 1-billion-tonne global seaborne market, plan to ramp up output by more than 300 million tonnes over the next 3 years.
Their ambitious expansion plans, along with those of junior miners eager to cash in on the iron ore bonanza, have prompted some analysts to predict the seaborne market will be oversupplied by 2014 or 2015.
Ian Roper, a commodities strategist at brokerage CLSA, said the industry had to hope the millions of tonnes of announced capacity increases would not happen.
"If everyone did what they said they would, iron ore would be practically free," he said.
Separately, Rio's Walsh also said iron ore prices were expected to remain volatile in the next six months.
The price of the "rust-red gold" has slumped to around $140 a tonne from more than $180 in September, according to Platts .