India tipped for China-type growth without global hunt for resources

Global resources pundits believe that as surely as night comes after day, India will follow China as the next explosive growth story in Asia.

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Global resources pundits believe that as surely as night comes after day, India will follow China as the next explosive growth story in Asia.

The question is – will it be the needy customer that China is, desperate to build infrastructure based on overseas mineral supplies? Or will it be able to provide for itself? The answer appears to be that India desperately does not want to be a needy customer.

One has only to look at the latest bold plans from the London-based but Indian-born Lakshmi Mittal, one of the richest men in the world, who is eyeing up a giant new opencast mine about 500km inside the Arctic Circle in an attempt to extract an estimated US$23 billion (Dh84.47bn) worth of iron ore.

Mr Mittal's company is ArcelorMittal, the world's biggest steel producer.

It has already spent about $600 million to buy Baffinland Iron Mines and develop the Mary River iron ore deposits in the Nunuvat region of the Canadian Arctic.

Mr Mittal appears to be going to extraordinary lengths to make his huge steel concern vertically integrated so that it is not reliant on the big three - Australia's Rio Tinto and BHP Billiton, and Brazil's Vale.

Other Indian producers such as Tata Steel and Essar Steel are seeking to do the same thing.

Together with coal, iron ore is the building block on which China's growth has gained momentum. China has so far been largely dependent on the big three producers, which dictate world prices for the raw material.

Unlike China, India is more interested on high value-added flat steel products, while China has relied on commodity-grade steels used to build infrastructure and commercial buildings. It is only recently that China has moved to the higher-value products.

The problem for Indian producers is they are not ready to start building new capacity to produce commodity grade steels if they have to pay market prices and shipping for iron ore and coking coal from Australia and Brazil.

Many in Australia and Brazil still believe that India is the next story in the making - rich pickings for them. India's low steel intensity per capita and its chronic lack of infrastructure are signals that steel production - and demand for iron ore - can only get bigger there.

In February, Vale said India would have to curtail iron exports to support its own industrialisation and its "badly needed large investments in infrastructure building".

Unlike China, Japan and Korea - all of which have sourced their supplies through the traditional channels, India has plenty of its own iron ore. It has just been inefficient or incapable of extracting it on an industrial scale.

Commentators in Australia say Indian steel makers hope to receive permits for new iron ore mines at home, or if possible to partner with the few Indian companies that already have supplies overseas.

As for India's own reserves, the allocation of land in the eastern ore-producing states has proved to be difficult. ArcelorMittal's bid to build a 12 million tonne a year steelworks in Jharkhand is still pending, as is a similar bid by the company to construct a plant in nearby Orissa.

Permit processes for the mining industry are riddled with corruption, and applications can also fail on the objections of tribes in the undeveloped areas. With the onset of monsoon in India, the supply of iron ore is restricted from June to August. A Maoist guerilla movement in some of the more remote mining regions has also deterred steel companies.

It seems that until India can improve its organisation, progress on infrastructure will be slow. But if India does organise itself, its efforts may not unravel as many expect. Rio Tinto, BHP Billiton and Vale may find not a needy customer waiting but a well-resourced competitor.