Please ensure Javascript is enabled for purposes of website accessibility

India Needs To Secure Natural Resources Just Like China

By Reuben Gregg Brewer – Feb 6, 2014 at 10:04AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

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 (BHP 3.27%), Rio Tinto (RIO 1.15%), and Peabody Energy (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 (TECK 4.98%).

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.

China's growth is dramatically impacting the auto market as well

Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

Invest Smarter with The Motley Fool

Join Nearly 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Peabody Energy Corporation Stock Quote
Peabody Energy Corporation
BTU
BHP Group Ltd. Stock Quote
BHP Group Ltd.
BHP
$62.80 (3.27%) $1.99
Teck Resources Stock Quote
Teck Resources
TECK
$37.09 (4.98%) $1.76
Rio Tinto Group Stock Quote
Rio Tinto Group
RIO
$68.64 (1.15%) $0.78

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
349%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.