I’ve talked a lot lately about India’s coal production problems. And how they are spurring a supply crisis that could become one of the best investment opportunities of 2014.
But the situation may be equally attractive in another of India’s major commodities: iron ore.
Without fanfare, India has seen its iron ore production dry up almost completely over the last few years. In financial year 2012-13, the country’s surplus iron ore production dropped to just 11 million tonnes. Down some 90% from the 102 million tonne supply surplus India enjoyed in FY2010-11.
That situation is only getting more dire, according to reports this week.
News surfaced in the Indian press that judicial enquiries are finding the country’s iron ore sector to be a mess. Citing leaked portions of an official report that found nearly half of the iron mines in major producing state Odisha are operating illegally.
The so-called “Shah report” allegedly finds that 94 out of 192 mines in Odisha are running without mandatory environmental clearances.
To boot, 75 of these iron ore mines have produced more than permitted levels over the last several years. With 56 mines operating near to sensitive wildlife areas without any attendant precautions.
If indeed confirmed, these findings will be yet another setback for India’s iron ore sector. And possibly a significant catalyst for the global industry.
That’s because India is a critical player in this space. In 2012, the nation was the world’s fourth-largest iron ore producer. Putting out over 8% of global output.
And yet government stats show that Indian iron ore exports are in free-fall. Having dropped to just 18 million tonnes in 2012-13, down from 98 million tonnes two years previous.
That situation isn’t getting better anytime soon. This week’s report will apparently recommend that the central government bring legal action against miners and corrupt local officials to recover money made from illegal production. A process that will almost certainly slow mining in Odisha.
This situation isn’t getting a lot of coverage in the global press. But it’s potentially a major driver for prices. If India’s mining woes force it to stop exporting iron ore, and possibly begin importing, global supply dynamics will see a big shift.