Mumbai/Delhi: Iron ore exporters are holding shipments because they expect the government to reduce export duty on the commodity to pare the growing trade deficit.

“The market is full of rumours that the iron ore export duty will be cut to 20% from 30%," said Prakash Duvvuri, head of research at mining and metal information website Oreteam. “Traders are holding their shipments."

Iron ore has been one of India’s largest bulk exports. Until a few years ago, it exported around 100 million tonnes (mt) of the steel-making ingredient, mainly to China. However, action against illegal mining and environmental degradation in the main producing states have cut the exports to less than a quarter.

In 2012-13, India’s exports of iron ore stood at 19 mt, down from the previous year’s 68 mt, Oreteam data showed.

“A cut to 20% may not be sufficient to revive exports," an executive in a commodity trading company said, requesting anonymity. “Maybe 10% would help. There are supplies of low-grade iron ore fines (that Indian steel makers can’t use) in the east coast that could be exported."

Finance minister P. Chidambaram told reporters on Wednesday that the government is planning to take a slew of measures to narrow the current account deficit, including looking at promoting exports and measures to reduce imports, especially non-essential items.

Mines minister Dinsha J. Patel told a mining lobby group on 31 July that his ministry will request the ministry of finance to reduce export duty on fines.

The finance ministry will take a final decision based on the suggestions of the ministries of mines, commerce and steel, a mines ministry official said on condition of remaining unnamed.

While the mines and commerce ministries favour reduction of export duties, the steel ministry wants to maintain the status quo fearing scarcity of iron ore for domestic steel producers, he said.

However, his rationale is that “not all types of iron-ore are suitable for processing in India". Most of the plants in India are capable of using only high quality iron-ore while the capacity to process low-quality ore is still in nascent stages.

He suggested, therefore, that this duty reduction should come with a “rider of quality"—limited restrictions on the export of high-quality iron ore.

Agreeing to finance minister’s approach, the official said duty cuts would boost exports and bring in precious dollars.