Vale SA (VALE5), the world’s largest iron-ore producer, is poised to lose market share to Australian rivals Rio Tinto Group (RIO) and BHP Billiton Ltd (BHP) as Brazil imposes stricter environmental rules on new mining projects and labor costs soar.

Brazil’s share of the seaborne iron-ore market may sink to 27 percent by 2016, down from 31 percent now, as the country boosts capacity by 188 million tons, according to data compiled by Bloomberg. Australia will probably add about 502 million tons, taking its market share to 50 percent from 41 percent.

Vale, based in Rio de Janeiro, delayed the $8 billion Carajas Serra Sul expansion and at least three other projects in Brazil last year amid environmental permit issues, higher costs and labor shortages. The company also cut its 2015 iron ore output estimate by 10 percent to 469 million metric tons and is weighing asset sales as it focuses on metals production.

“We are becoming less competitive,” Jose Fernando Coura, president of the Brazilian Mining Institute, said by telephone from Brasilia. Getting approval for a new project is “a Calvary because you need to go through 350,000 institutions,” he said.

BHP, based in Melbourne, said April 18 that fiscal third- quarter iron-ore output surged 14 percent as it expands mines and ports in Australia. London-based Rio Tinto’s production gained 9 percent to 45.6 million tons, while Vale’s dropped 2.2 percent to 70 million after bad weather hurt operations.

Miners are boosting output to meet Chinese demand as the country’s growth stokes demand for steel in automobiles, appliances and construction. Chinese steel production reached a record in March amid the ramp up of new plants.

Australian Ore
Australian iron ore output may climb to 940 million tons by 2016, compared with an expected 519 million tons for its South American rival, according to Bloomberg data.

Vale rose 2.6 percent to 35.70 reais in Sao Paulo on May 18. The stock has fallen about 18 percent in the past twelve months, more than the 13 percent decline of the Brazilian benchmark Bovespa Index. (IBOV) BHP, the world’s biggest mining company, lost 29 percent in Sydney during the same period while Rio Tinto fell 32 percent.

China’s steel demand will remain positive until at least 2025 and production will rise to about 1.1 billion tons by 2025 from about 700 million tons currently, BHP said in March. The company is more than doubling its iron ore capacity by 2020 and this year got initial approval to expand its export harbor in Western Australia, where most of the country’s ore is mined.

Australia Investment
“The investing environment in Australia is a little bit friendlier than in Brazil from a political, environmental and permitting standpoint,” said Andrew Cosgrove, a Bloomberg Industries analyst in Princeton, New Jersey. “Brazil may not be seen as the source of new supply in the future that a lot of people are expecting.”

Brazil, which counts iron ore as its key export product, shipped 330.8 million metric tons last year, 107 million less than Australia. The gap between the two has widened since 2008, the year the country overtook Brazil as the largest exporter.

Australian exports will grow 12 percent this year to reach 493 million metric tons, the country’s Bureau of Resources and Energy Economics said in a March 21 report. Brazilian exports will gain 6.4 percent in 2012, it said.

Vale’s Carajas Serra Sul project, which is expected to increase capacity by 90 million metric tons, is two years behind schedule, the company said Nov. 28. Vale is expecting to get a preliminary environmental license for the project by June.

‘Licenses to Maintain’
“We obtained licenses to maintain,” Vale Chief Financial Officer Tito Martins told reporters May 18. “The difficulty that arose is getting licenses to expand.” Vale’s permit to operate its N5 Sul pit, granted in January, was the first license the company obtained in the Carajas region, where the company has its biggest mine, in 10 years, Martins said.

Vale isn’t the only company grappling with project delays and challenges in obtaining licenses in Brazil. Anglo American Plc (AAL), based in London, was ordered by the authorities to stop construction at its Minas Rio project, the company’s biggest, six times. The reasons for the stoppages included protecting the area’s artistic and cultural heritage.

“This is a painful process, but we go through it,” Paulo Castellari, the head of Anglo’s iron-ore unit in the Latin American country, said of the Brazilian permitting processes in an April 5 interview from Rio de Janeiro.

The company last month also had a license to install a power line at the project suspended by a Minas Gerais state court. Anglo failed to fulfil some of the conditions to obtain the permit, prosecutor Francisco Francisco Chaves Generoso told the court in a civil lawsuit.

Higher Costs
In December, Anglo raised its cost projection for at least the fourth time to as much as $5.8 billion, more than double the figure planned when the company agreed to buy the assets. The company has followed all legal requirements for environmental licensing on the project, which remains on track to begin shipments in the second half of next year, according to London- based spokesman James Wyatt-Tilby.

Mining projects in Brazil may become less profitable because of planned legislation. The government is drafting new rules to increase royalties on the extraction of iron-ore and other minerals.

Vale last year stopped publishing a long-term iron-ore output forecast after cutting its 2015 estimate. Rio Tinto, the world’s second-largest iron-ore exporter, has embarked on a plan to boost output capacity by more than 50 percent in Western Australia, reaching 283 million metrics tons in 2013, with a plan for a further increase to 353 million tons by the first half of 2015, it said in February.

Still, Vale’s low production costs and the high quality of its iron ore may prevent it from losing the lead in the market, according to Alan Glezer, an equity analyst at Banco Bradesco BBI SA.

“The company has the lowest production costs and has an iron ore of high quality, so they have a privileged position as the market expands,” he said by telephone from Sao Paulo.