Why Iron Ore Miners Ought to Be Watching India

China makes headlines for its consumption of natural resources, but India is an equally important developing nation. And, like China before it, it is quickly getting to the point where key domestic resources aren't enough to satisfy domestic demand. That means key natural resource imports will pick up—a shift that may soon happen in the iron ore space.

The Ministry...
According to India's Ministry of Steel, "iron ore production during 2011-12 (provisional) was about 167.28 million tonnes" with domestic consumption of "about 116.3 million tonnes." So, historically, India hasn't used all of its iron ore. However, the ministry also notes that "Considering the growth of the iron and steel industry and planned steel capacities, the present resources of high grade iron ore in the country may not be sufficient to meet the long term requirement of [the] domestic iron and steel industry."

In other words India has plenty of iron ore for the moment, but pretty soon it will turn into a new customer for global iron ore miners like BHP Billiton (NYSE: BHP  ) , Rio Tinto (NYSE: RIO  ) , and Vale (NYSE: VALE  ) .

Big growth
Vale, for example, expects steel production in Asia to grow by 24% through 2020. That's going to lead to an increase in seaborne demand for iron ore of 35%. How does a 24% increase in steel production lead to a 35% increase in demand for iron ore? When countries go from being able to satisfy their own iron ore needs to being forced to import raw materials to meet domestic demand.

India is one of the big Asian nations and, as the Ministry of Steel noted, it could soon become a net importer of iron ore. In fact, India's steel consumption per capita is well below that of developed nations like the United States, Japan, and South Korea, and developing nations like China and Brazil.

Vale is looking to tap into this market by increasing its iron ore production by 50% over the next five years and by continuing to invest in its logistics assets. The latter is a big issue for the company since its South American location puts it at a disadvantage to iron ore miners like BHP and Rio that have mines in Australia.

Benefiting from being local
While Vale clearly has Asia in its sights, the opportunity it outlines isn't lost on other iron ore miners. BHP, for example, has been working on cutting costs in a difficult mining market, but is spending money where it makes the most sense—to increase port throughput at its iron ore terminals. The most recent upgrade will take place at its Nelson Point port operations in Australia. Replacing two older shiploaders will increase iron ore throughput by 25%.

Rio Tinto also has a big iron ore operation in Australia. Although Chinese demand is the most prominent talking point, the company highlights India as an important growth market for iron ore. Like BHP, the company is working on improved efficiency and cost reductions. It also has a couple of large development projects that will increase its iron ore production. While both are currently on hold, they are waiting in the wings for a quick ramp up when demand increases. India shifting from exporting iron ore to importing it could be the catalyst that gets the projects off the drawing board.

All eyes are on China...
While everyone is talking about China, you should also be keeping a close eye on India. The market isn't as big as China, but it is developing quickly and could soon be importing more natural resources to keep up with its own demand. With regard to iron ore, that would make Vale, BHP, Rio, and their shareholders very happy.  

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