The much-discussed iron ore supply surge seen set to hit seaborne routes in the second half of 2014 may have less impact than expected, given a greater capacity expansion occurred in 2013, Platts calculations indicated.

Australia's big three iron ore miners Rio Tinto, BHP Billiton and Fortescue Metals Group are poised to hike capacity by a combined 85 million-90 million mt in 2014 -- after adding 100 million mt in 2013, Platts data showed.

In light of this, the impact of the surge in supply may have already been factored in -- or at the very least, will not prove any more dramatic this year than last.

Whether China can absorb the second wave of supply expansion as easily as it did the first -- without any major impact on iron ore spot prices -- is the key question.

"I think 3-4% steel production growth in China will absorb enough of the new iron ore supply to prevent a sustained collapse in prices this year," Sydney-based RBC Capital Markets analyst Chris Drew said.

"If China can deliver 6-8% steel production growth, that would largely absorb all the new supply."

Platts 62%-Fe assessment averaged $128.15/dry mt CFR North China in January, down from $150.86/dry mt in January 2013.

The output ramp-up in the Pilbara region of Western Australia, driven largely by Fortescue's capacity expansion program, has seen a 40.4% increase in iron ore exports from Australia to China over the past two years, China customs data shows.

China imported 417.1 million mt of iron ore from Australia in 2013, up from 351.7 million mt in 2012 and 296.8 million mt in 2011.

Reported production from the three Australian miners in 2013 rose 21% year on year to a combined 580.4 million mt.

"It's been a big year of expansion for WA iron ore miners both big and small," Perth-based RBS Morgans iron ore analyst James Wilson said.

Fortescue is on track to consistently produce at 155 million mt/year in H2 2014, having produced around 126 million mt in 2013, up 88% from 2012.

BHP Billiton raised its output by 20 million mt to 175 million mt in 2013, according to the company's quarterly reports. Propelled by output from its new Jimblebar mine in the Pilbara, the Melbourne-headquartered company is set to produce consistently at 220 million mt/year by the end of 2014.

Rio Tinto produced 250.6 million mt of iron ore in the Pilbara in 2013 and appears on track to achieve its 290 million mt/year target in H2 2014. LITTLE NEW SUPPLY FROM BRAZIL

Compounding Australia's dominance in the seaborne market is the continuing inability of Brazil to lift its production capacity and India's near-disappearance as a supplier of iron ore to China.

Brazil continues to struggle to lift production, with the South American country's exports to China falling 5% year on year in 2013 to 155.4 million mt, according to China customs data.

The country's dominant producer Vale could add around 15 million-20 million mt/year of new capacity from Carajas this year. But how much of this will translate into a net increase in current capacity of around 310 million mt/year remains to be seen as the company has struggled to expand output in recent years due in part to delays in obtaining environmental approvals.

Analysts at brokerage CLSA also note that Vale's capacity expansion program is more expensive those of its Australian peers, and will require an iron ore price of "about $120/mt to meet its growth plans in the medium term."

Little new supply is likely to emerge from other sources in Brazil. Mineracao e Metlicos, or MMX, has scaled back its expansion ambitions for the Serra Azul iron ore mine to 15 million mt/year from an earlier plan to reach 29 million mt/year. Current capacity stands at 8 million mt/year and the company needs a strategic partner before it can develop the project.

EYES ON INDIA

China's former swing spot supplier India continues to grapple with mining and export bans and reviews that have made the country all but irrelevant in the seaborne market.

China received just 11.7 million mt of iron ore from India in 2013, compared with 33.4 million mt in 2012 and 73 million mt in 2011.

However, with an election looming in India and the potential for a new government to seek ways of unlocking potential revenue, many market observers are anticipating some export activity may resume.

There is already enough iron ore stockpiled in Goa and other states to potentially make a dent on the market.

But the powerful Indian steel lobby is unlikely to loosen its grip on the raw material it wants to retain to feed its own steel capacity ambitions.

The recent introduction of a 5% tariff on pellet exports -- at a time when pellet prices are at a premium as China seeks higher quality raw material -- indicates India is unlikely to suddenly acquiesce on the issue.