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Is This Metal About To Get Better... Then Bust?

Some critical events are unfolding globally this week for one major metal. Suggesting that this particular commodity could get a lift from policy changes--before it runs into some stiff headwinds from other shifts.

The metal is iron ore. A commodity that has recently got a big lift from events in India.

The Indian government had led a major crackdown on illegal iron ore mining the past year. Shutting down numerous operations lacking proper permitting in states like Goa, in the country's west.

That's caused India's iron ore exports to dwindle from hundreds of millions of tonnes yearly to nearly nothing. Even bringing on speculation that the country could become a net importer of iron.

And last week the government took another step in hemming in domestic iron ore miners. By raising royalty rates on iron ore production in the country.

The national cabinet approved an increase in iron ore royalties to 15%, up from a previous 10%. A significant jump in the overall tax burden borne by mining companies here.

This, combined with relatively low iron ore prices, could put financial pressure on those producers still in business. Possibly resulting in more loss of supply--and a further decrease in India's overall iron import balance.

That would obviously be supportive of global prices. And a positive for any producers able to sell into the Indian market.

But India's government may also be looking down the road with this policy. To the latter part of 2014--when it's expected that some of the country's idled, illegal iron ore mines may come back online.

Word is that many mines halted in the former crackdown have now gone legit in terms of achieving permits. With some observers expecting that India's courts may therefore allow a restart of mining in areas that are currently under production bans.

The government may be preparing for such. Looking to grab a bigger slice of the action when the iron ore sector does swing back to life.

Such an event might well prove another big challenge for the global iron sector. With more-plentiful supply once again opening the door to higher exports. Giving the market one more source of supply looking for a home.

That could have an important effect on prices. It's a dark horse to watch in this space.

Here's to the ups and downs,

Dave Forest

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