Sun, 13 Oct 21:00:00 GMT
* Rio Tinto, BHP, Fortescue to release quarterly data
* Defying some gloomy forecasts, iron ore output to rise
* As output grows, costs fall; cushion if price weakens
By James Regan
SYDNEY, Oct 14 (Reuters) - Australia's "big three" iron ore miners are set to unveil a boost in third-quarter production and will mine even more in the fourth quarter, ignoring forecasts of a looming supply glut in favour of capturing greater economies of scale.
Rio Tinto this month upped annualised output of the steel-making raw material by 20 percent to 290 million tonnes, while BHP Billiton and Fortescue Mining are in the midst of robust expansion work.
All three already mine ore at costs well below selling prices -- thanks to a combination of rich grades and high volumes -- and see any dip in prices as simply weeding out less competitive rivals.
Rio Tinto, which is set to post a 3 percent rise in third-quarter output against the previous quarter to 53 million tonnes on Tuesday, is expected to announce a further mine expansion to 360 million tonnes a year by a Dec. 3 meeting with investors.
"With the iron ore price holding up well as we move into Q4, we expect to see continuing growth from this key driver of earnings," said RBC Capital Markets analyst Chris Drew, pointing to resilient demand from China.
Fortescue is set to unveil on Thursday a 20 percent output increase to just under 30 million tonnes for the three months to end-September, and BHP Billiton a 4 percent rise on Oct. 24 to just under 50 million tonnes.
Output from the three companies accounts for about 70 percent of the seaborne iron ore trade, feeding strong demand from China that has pushed prices to record levels in recent years.
Despite persistent forecasts for a price fall due to greater supply and slower Chinese demand growth, benchmark 62-percent iron ore <.IO62-CNI=SI> sold for at least $130 a tonne for much of the third quarter and now fetches $132, sufficient to generate healthy margins.
Rio Tinto and BHP, whose cash costs are projected by analysts at around $25 a tonne -- down from $28 in the September quarter -- need iron ore prices of only $50 a tonne to start generating positive cash flows, when freight and other fees are applied.
Fortescue, which typically sells its ore at a 12 percent discount to the benchmark price, requires a price of $75 a tonne for positive cash flow.
BHP is developing new mines with an initial production capacity of 35 million tonnes a year, boosting overall capacity to 220 million tonnes annually by late 2014.
Nearby, Fortescue's Kings mine expansion will lift the company's 120-million-tonnes-per-year production rate to 155 million tonnes by the end of December.
HEADWINDS OR BLUSTER
The expansion work means output will rise again in the fourth quarter. Miners have already concluded most booking requirements for October loadings, which should exceed last month's record shipments, when the Port Hedland Port Authority recorded a 46 percent rise to 28.9 million tonnes year on year.
Port Hedland is used by BHP and Fortescue, and handles about a fifth of all global seaborne iron ore.
Some see headwinds for the sector from the increased supply and with plans on the drawing board for other mines in Australia, Africa and Brazil.
HSBC is forecasting global iron ore demand will reach 2.21 billion tonnes in 2016, with supply outrunning demand by 231 million tonnes, which could weaken prices.
But Rio Tinto's iron ore chief Andrew Harding is expected to assure investors at the December briefing that steel demand in China remains strong and warrants new mine development.
Trade data shows steel production rates in China, which typically wilt in September and October, have displayed no sign of easing and continue to exceed a healthy 2 million tonnes a day.
Also, trade flows for iron ore are still above a robust 65 million tonnes a month.
The World Steel Association has lifted its global steel use growth forecast to 3.1 percent year-on-year in 2013 and 3.3 percent in 2014, citing a strong outlook for China.
UBS still sees iron ore falling as low as $70 a tonne before the end of the year due to inventory draw downs by China's mills, but even so believes the drop will be short-lived, with a recovery in place before the start of 2014.
"It's not the end of the world," UBS commodities analyst Tom Price said. "In fact we have been saying to clients that it's a really good buy signal."
($1 = 1.0575 Australian dollars)
(Editing by Richard Pullin)