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Indian iron & steel: Unfulfilled potential

Mar 18, 2010

The flavor of the season is to fault the Chinese for their reckless monetary policies. The dragon nation has created a bubble and it will burst sooner or later, experts say. May be. But anyone who visits China comes back to talk about the incredible infrastructure that they have built. And how far left behind India actually is. And the numbers support the anecdotal evidence. The building block of infrastructure

Iron and steel is the building block of most infrastructure. There was little to choose between the Asian giants in this industry a few decades ago. But today China's achievements completely dwarf India's. China has about 14% of the world iron ore reserves. But it contributes a much larger share of around 35% of the world iron ore production. And amazingly, when it comes to crude steel production, China accounts for nearly 50% of the world numbers. Thus, China's phenomenonal presence in the iron and steel market is much more due to their own efforts than mere natural bounty.

The Asian giants' place in the world
% share in world total India China
Crude steel production* 5 47
Iron ore reserves** 4 14
Iron ore production** 9 35
*During the 11 months ending Nov, 2009, Source: Worldsteel.org;
**Source: US Geological survey, 2008

Contrast that with India. India has about 4% of the world iron ore reserves. It contributes to about 9% of the world iron ore production. A lot of the iron ore is shipped away to countries like China. It doesn't have sufficient steel making capacity to exploit its reserves. As a result, India accounts for a mere 5% of the world crude steel production. That's not the number the world's second fastest growing economy should post.

China vs. India
Multiple of
Crude steel production 10
Iron ore reserves 3
Iron ore production 4

In terms of a direct comparison, China has about 3 times India's iron ore reserves. It produces 4 times as much iron ore as India. But when it finally comes to steel production it churns out a staggering 10 times the metal as India. There is a simple lesson in all of this. Not a moral science lesson. But one in economics. It is not what you have that counts; what counts is what you do with it.

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