Mumbai: A two-year old ban on iron ore exports from southern Karnataka which has halved shipments from the world’s No. 3 supplier will be the focus of an industry gathering in Bangalore as pressure mounts for the restriction to be lifted.

Karnataka, where iron ore mining is also severely limited, has been the poster state forthe country’s efforts to crack down on illegal mining.

A deserted ironore mine in Sandur, Karnataka . Photo by Aniruddha Chowdhury/Mint

Miners are now pressuring the state government to lift the export ban to boost their business.

The ban in Karnataka, which accounted for about a quarter of India’s total iron ore shipments, has diminished the impact of supplies on spot iron ore prices , with the gap filled by top exporters Australia and Brazil as well as emerging suppliers like South Africa and Indonesia.

Shipments of iron ore from India, which used to export 100 million tonnes annually, had dwindled to 55 million tonnes in the 11 months to February, based on the latest available data from the industry group Federation of Indian Mineral Industries (FIMI).

“The situation is extremely fluid as far as iron ore situation in Karnataka is concerned. Karnataka should be allowed to export iron ore like the rest of India," said Basant Poddar, managing director with Mineral Enterprises Ltd (MEL).

MEL is one of the many iron ore miners in Karnataka which has been hit by the ban that was put in place by the state government in July 2010. The Supreme Court lifted the ban in April 2011, but the state government has since been dragging its feet in implementing that court order.

The top court also banned mining operations in the state from July 2011, only to switch to a partial ban in April 2012.

Because of the ban on both iron ore exports and mining in Karnataka, the state government has lost Rs4,000 crore ($720 million) in potential revenue and more than 150,000 people have lost their jobs, according to Indian research firm OreTeam.

Posco, pellets

The problems of the mining sector have been also been compounded by official indecisiveness about mining issues, as India grapples with its slowest economic growth in nine years and the rupee hovering near an all-time low.

The Karnataka state government has not approved a single new mine in the past two decades, and about 40% of the 50,000 applications for mining leases are still pending, said David Pichamuthu, FIMI head for the southern region.

“If we act on clearing mining leases, at least 75% of the problem will get solved," Pichamuthu said.

Delegates at the industry conference will include officials from South Korean steelmaker POSCO, miners VALE and Rio Tinto, and Indian iron ore miner NMDC.

POSCO’s planned $12 billion steel plant in the eastern state of Orissa remains stalled by environmental concerns. The plant, which will be the country’s largest foreign direct investment, was granted a conditional clearance from the environment ministry last year.

A growing move among steelmakers to invest in more pelletizing and sintering plants that can take the iron ore fines now mostly exported to China is also expected to be discussed at the industry gathering. India’s traditional steel blast furnaces can use only iron ore lumps.

India’s current pellets capacity stands at 42 million tonnes a year, with another 32.6 million tonnes in the planning stage.

“The mantra for the central or state government is pelletisation. This is a half way forward for the state," said Poddar from MEL.