By Guillermo Parra-Bernal

SAO PAULO (Reuters) - CSN, Brazil's largestdiversified steel group, expects its $2.6 billion railway andlogistics project Transnordestina to start operations by theend of 2012.

The 1,728-kilometer-long (1,080-mile) railway acrossBrazil's northeast, which could help the company transport morethan 30 million tonnes of cargo a year across the nation'sfastest-growing region, should give CSN self-sufficiency inlogistics, executives said Wednesday.

The four advance contracts that have already been signedshould help the investment break even ahead of its completion,Tufi Daher, the unit's president, said.

The project is the latest example of Brazilian companiescreating their own infrastructure to get around bottlenecks intransportation and elsewhere as the economy booms and publicinvestment remains low. The railway could transport iron ore,foods and gypsum, which is being produced at a great scale inthe region, the executives said.

Operational margins are seen topping 50 percent of annualrevenue, and returns on the investment should be 13 percent --more than projects estimated to be highly profitable likeBrazil's offshore oil drive in the so-called subsalt region,Daher said. However, CSN has no plans to list Transnordestinain the immediate future, Daher said.

"The investment in Transnordestina is in our view good inorder to create value for our shareholders because it bringsabout much-needed diversification and offers adequate returns,"CSN Chief Financial Officer Paulo Penido Marques said.

Chief Executive Benjamin Steinbruch has said repeatedlythat CSN could also sell stakes in its cement, steelmaking,energy and logistics units to investors and list themseparately, which could help all the units capture market shareand attain cost efficiency more rapidly.

"Even as we see diversification as a positive development,the group's simultaneous actions in different fronts embedssome risks and will demand more expertise," Rodrigo Ferraz, asteel and mining analyst with Rio de Janeiro-based BrascanCorretora, said.

Wednesday's presentation of the Transnordestina project byCSN executives was the first aimed at investors and analysts.CSN owns about 56 percent of the project's equity. Among otherpartners are the federal government and state-controlleddevelopment bank BNDES.

None of the executives mentioned anything about CSN'splanned initial public offering of the group's mining unit,which could include some logistics units.

Transnordestina, which is expected to require capitalinvestments worth 4.6 billion reais ($2.7 billion) through2012, will be funded with debt and capital injectionsequivalent to 60 percent and 40 percent of the total cost ofthe project, respectively.

Daher and Penido Marques said the project, which has anestimated cost per kilometer at about 2.9 million reais, is oneof the most cost-efficient railways in the world. That shouldhelp CSN attain high efficiency levels and help it attainhigher profit margins, both executives added.

CSN rose 1.1 percent to 28.15 reaisWednesday. The stock has gained 4.1 percent this year.

($1=1.725 reais) (Reporting by Guillermo Parra-Bernal, editing by DaveZimmerman, Gary Hill)