India Needs To Secure Natural Resources Just Like China

Although India tends to live in the shadow of China, it's a fast growing nation in its own right—and it's looking to ensure it has the resources it needs to expand just like China is.

Feb 6, 2014 at 10:04AM

India's Steel Minister Beni Prasad Verma recently took a a five day trip to Australia and New Zealand to talk shop. And to make sure that the country can get access to such key resources as metallurgical coal and iron ore when it needs it. That's good news for BHP Billiton (NYSE:BHP), Rio Tinto (NYSE:RIO), and Peabody Energy (NYSE:BTU).

Let's be friends
According to the Indian government, the purpose of the trip was to "...boost cooperation in the areas of mining and coal supply." That's in preparation for India's planned increase in steel production, which is set to go from about 80-90 million tons today to 300 million tons by 2025.

While India has been able to meet most of its own needs so far, it sees a future in which importing key resources will be vital. For example the Ministry of Steel released a report in late 2013 stating: "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."

So, it makes sense for the country to start reaching out as soon as possible. And it has stiff competition in China, which is reaching out in its own right. For example, China's Shenhua Group just entered into a 50/50 joint venture with Peabody to provide thermal coal to the giant nation, and China's large oil companies have been busy buying up foreign assets to build their scale and replenish reserves.

The good news crew
These two Asian giants looking to secure access to key resources is good news for Rio, BHP, and Peabody. All three have material operations in Australia, which is located just a short boat ride from China and India.

Peabody is focused exclusively on coal, if you are looking for a pure play in the space, and it's Aussie operations sell both thermal and metallurgical coal, so it will benefit from both the demand for steel and the demand for energy in these quickly developing markets. It is also making strategic inroads in China, such as the Shenhua partnership and its involvement with China's clean-coal research effort GreenGen. It's worth noting that Peabody is the only non-Chinese company involved in GreenGen.


Rio and BHP are both far more diversified, selling everything from uranium (Rio) to oil (BHP). However, the big business at both is iron ore, which accounts for about half of each company's business. Add in the met coal that each sells and their exposure to the steel industry is that much greater.

So, as India reaches out to Australia to solidify supply relationships for its steel industry, look for this duo to benefit on two fronts. That said, increasing demand won't only benefit Australian miners. As increasing demand sops up nearby supply, India and China will have to look further afield. For example, China is already a big customer to Teck Resources (NYSE:TCK).

Broader reach
This miner is located in Canada, but ships most of its metallurgical coal to Asia out of West Coast terminals. It's been sending out record volumes of coal, but low prices have kept results weak. Still, it already has key relationships in the region and plenty of met coal to go around. And it isn't the only company that would be happy to see increased Asian demand but that doesn't operate in the region.

So while Rio, BHP, and Peabody are in prime position to benefit as China and, increasingly, India reach out to secure natural resources, don't think they are the only ones set to benefit. True, they're likely to be the first beneficiaries, but the entire mining industry will enjoy the results of these two nations maturing into world powers.

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Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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