Railroad Boosts Brazil’s Role as Iron Exporter

Brazil has strengthened its position as the world’s No. 1 exporter of iron ore with the inauguration last week of the Carajas-Sao Luiz railroad that links vast mineral reserves in the eastern Amazon to a deep-water port.

Brazil, with a $100-billion foreign debt, has to increase its exports to cover interest payments of at least $10 billion a year, and the Carajas project is one of the country’s major prospective exchange earners. Even at current depressed prices for iron ore--less than $20 a ton--Brazil’s iron ore and steel exports can be expected to exceed $2 billion a year. A recovery in world steel consumption, leading to higher ore prices, would put Brazil in an even stronger position.

Brazil overtook Australia last year as the world’s leading iron ore exporter, shipping 86 million tons of ore and pellets. With the addition of 15 million tons from Carajas this year, rising to 35 million tons in 1987, it expects to maintain an annual export level in excess of 100 million tons for years to come.

The Carajas mining district has an estimated reserve of 18 billion tons of high-grade ore (66% iron content, free of sulphur and other impurities). The quality is such that steelmakers in Japan and Western Europe have helped finance the project by buying up 80% of prospective production in advance.

The railroad to Carajas, where there are substantial deposits of manganese, copper, gold and other metals, as well as iron, is more than a mining venture. It is the key to the settlement of a vast unoccupied area in a country of 130 million people, many of them landless peasants.

The modern railroad, running 550 miles through virgin rain forest from Sao Luiz, capital of the coastal state of Maranhao, reaches a terminal in the Carajas hills that is not only one of the world’s richest mineral sites but an undeveloped region of great agricultural and industrial potential.

“This railroad opens up a whole new country,” said Eliezer Batista da Silva, president of the Brazilian state mining company Vale do Rio Doce, which carried out the project ahead of schedule and below budget.

The railroad is designed primarily for ore trains of 160 cars, pulled by three locomotives and leaving eight times a day for the deep-water port at Itaqui, near San Luiz, which can take bulk carriers of up to 280,000 tons. But it will also carry general cargo and passengers, providing the transportation needs of a region now badly served by roads affected by seasonal heavy rains.

The combination of better transportation and of cheap power from the Tucurui hydroelectric dam, which is only 75 miles north of the railroad and began generating electricity in November, is expected to attract metallurgical industries to cities like Maraba, where the railroad crosses the Tocantins River over a bridge a mile and a half long.

Batista da Silva said that Vale do Rio Doce, a powerful company that for 40 years has based its iron ore production in the southern state of Minas Gerais, would foster metal processing plants, particularly in iron and steel products, in the area served by the railroad.

Improved highways and river transport on the Tocantins and Araguaia rivers to the railhead at Maraba would also give the new railroad additional cargo in forestry products, livestock and agricultural output, such as soybeans, that could be exported through the port at Sao Luiz.

Batista da Silva said in a press conference before the inauguration last Thursday that the Carajas iron mine and railroad project would recover within four years the $1.25 billion borrowed abroad.

“We started this project when world prices were low, and all unnecessary expenses were cut out,” he said. “That saved about $1.4 billion from the original estimate. Now, we expect prices to improve and we are starting production at the right time. This project is never going to be in the red.”

That would be a contrast with the experience of other Brazilian state companies, which have run into serious financial problems with major hydroelectric, steel and ship-building projects that borrowed heavily from overseas, contributing to the heavy debt burden without generating adequate foreign exchange earnings.

For example, on Wednesday in Minas Gerais, the state-owned steel industry inaugurated a steel mill that will go into operation five years behind schedule. Called ACOMINAS, it was budgeted at $3.4 billion but has already cost $5.6 billion, and will need an another $75 million before full production begins in 1987.