India's crack down on illegal mining is a $15 billion blessing for overseas iron ore producers

India's recent campaign against illegal mining in the country's key iron ore states has created a $15 billion gap in the international market whose benefits are set to be reaped by diversified giants such as BHP Billiton (ASX:BHP) and Rio Tinto (ASX:RIO) who are still struggling with dwindling demand from China.

The Business Recorder reports that the Indian government has recently engaged in strenuous efforts to eradicate illegal mining in the key iron ore producing states of Goa, Karnataka and Orissa. The crackdown has slashed iron ore output by over 20% in the year to March and exports by around 40%.

The clampdown on illegal mining could not have arrived at a more propitious time for overseas iron ore giants such as BHP, Rio and Vale (NYSE:VALE), all of whom have struggled this year with a dive in spot prices and ailing Chinese demand.

BHP, Rio and Vale have already picked up some of the $15 billion slack in the international iron ore sector created by the crackdown, acquiring much of India's market share in East Asia.

Graeme Train, a commodity analyst with Macquaire in Shanghai says the crackdown is a "huge bonus for big miners," while also creating opportunities for lower grade ore and smaller pure ore players such as Fortescue Metals Group (ASX:FMG).