Bangalore/New Delhi: Karnataka, India’s second largest producer of iron ore has banned exports of the steelmaking ingredient from 10 of its ports, government sources said on Tuesday.

Any clampdown on ore exports by India threatens to worry the $88-billion international market, firming up prices and prompting key consumer China to turn to top producers Australia and Brazil.

The move, designed to stamp out illegal mining and tax evasion, will hit supplies from Karnataka, which mined nearly 46 million tonnes of iron ore, or a fifth of total Indian production of 215 million tonnes in the year to March 2009, data from the Federation of Indian Mineral Industries shows.

“It came into effect yesterday," said a senior state government official, confirming talk in the last few days that Karnataka planned a ban.

“It will remain in effect till further government orders," said the official who declined to be named as most bureaucrats are not authorized to speak to the media.

Traders said news of the ban could boost prices further after this week’s sharp gains of almost 10% spurred by talk of the ban and a revival in Chinese demand on some buying from steel mills.

“It will somewhat boost prices," said Ashish Patel, senior broker at commodity brokerage BGC Partners in London, adding that he was quoting ores with 63% iron content at $136 a tonne with freight on Tuesday, one dollar higher from a day ago.

On Tuesday, the Steel Index 62% iron ore index was at $133.40 a tonne, up $6.4 from a day ago and up 13.4% from its lowest point last week since December.

Supply to be hurt

Iron ore supplies, already down because of monsoon season, which runs from June to September, could get further constricted, traders said.

The monsoon brings heavy rains that halt exports of the powdery iron ore fines which tend to absorb moisture and disrupt the transport of iron ore lumps.

Besides the ban on ports shipping iron ore, exporters in Karnataka said they were getting fewer transport permits in the last few months after political problems between the state and Central governments flared.

“We have stopped exporting," said the owner of a large mine in Karnataka. “There are others who are exporting, but fewer permits are being issued."

Karnataka’s iron ore, usually dominated by fines, gets exported mainly to China.

The ban follows a campaign by the Central government to rein in illegal miners who have been selling iron ore but not paying taxes, or have been flouting environmental norms.

The government is working on a new mining bill to stamp out lawlessness in mining areas.

The Karnataka ban follows accusations of illegal mining by firms and corruption in the government that has pitted the state’s ruler, the Bharatiya Janata Party, at loggerheads with the Congress-led UPA government at the Centre.

In Karantaka, some newspapers quoted state chief minister B. S. Yeddyurappa as saying he had banned export of the commodity, though there was no official notification of the move.

“As all 10 minor ports come under the state government’s jurisdiction, my government has taken the decision to ban export," the Deccan Herald quoted Yeddyurappa as saying.

Of the the 10 ports covered by the ban, Karwar, Belikere and Old Mangalore are key dispatch points for iron ore, traders said.