A Major Reversal In Iron Ore

I know I’ve written a lot about India lately. But one more happening needs to be flagged this week.

India’s Ministry of Steel released provisional figures on the domestic iron ore market. And the numbers are staggering.

We’ve talked about how India has gone from a thermal coal exporter to the world’s largest source of import growth in just a few years. The same things appears to be happening now in iron.

That’s partially because domestic consumption of iron ore is rising steadily. Provisional numbers for the 2012-13 fiscal year show consumption at 124.8 million tonnes. Up 13% from 2011-12.

But the bigger story is India’s iron ore production. Which is falling fast.

Output in 2012-13 totaled 135.85 million tonnes. Down 31.4 million tonnes, or  19%, from the previous year.

Over the past two years, the drop in production is even more dramatic. Since the 2010-11 fiscal year, output is down by 71.3 million tonnes. A fall of 34%.

With production falling and consumption rising, the supply-demand balance is getting very tight. As the chart below shows, production exceeded consumption by just 11 million tonnes in fiscal 2012-13.

India Iron Ore

At the same time, India’s iron ore exports have also been tumbling. The nation needs almost all of the supply it can produce.

This market is not the same size as heavyweights like China (which produced 1.3 billion tonnes of iron ore last year). But it is significant. And the loss of these exports could affect the market. All the more so if falling production drives India to become an importer, as has happened in the coal market.

This also explains why Indian firms have been pushing for iron ore project acquisitions abroad lately. Expect that trend to continue as the nation looks for supply sources to plug the coming hole.

Here’s to the markets of tomorrow,

Dave Forest

dforest@piercepoints.com / @piercepoints / Facebook

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