After the Indian government raised the export duty on iron ore last month, the steel ministry is reported to be seeking fresh hike to curb excess exports, especially to China.

China currently imports one-fifth of its annual iron ore from India.

In its budget recommendations, the steel ministry wants the government to curb the rising iron ore exports by imposing a 20-per cent export duty after the central government had doubled the export duty on iron ore lumps from 5 per cent to 10 per cent and on iron ore fines to 5 per cent from nil last month. (See: India raises export duty on iron ore by 5 per cent)

The steel ministry is in favour of promoting value addition within the country and conservating iron ore for domestic long-term use by the steel industry. According to the `National Mineral Policy' 2008, preference has to be given to value adders in the allocation of mineral concession.

Iron ore is the raw material used to make pig-iron, which in turn, is one of the main raw materials to make steel. About 98 per cent of the iron ore that is mined globally is used to make steel, which many analysts consider the most important commodity in the world after oil.

The production of iron ore in the country in the 2008-2009 was 227.64 million tonnes, and India, the fourth largest exporter of the ore after Vale of Brazil, and Anglo Australian miners Rio Tinto and BHP Billiton, exported about 106 million tonnes during the year, of which, 90.1 million tonnes was bought by China.

India is China's third largest supplier, and currently meets 16 per cent of its iron ore needs, selling it exclusively on the lucrative spot market.

China, the world's biggest producer and consumer of steel, imported a record 325 million tons of iron ore last year, of which, 60 per cent was came from Australia and Brazil, while India, the third largest supplier to China, supplied 23 per cent. The remaining 17 per cent was met by South Africa and other countries.

India's export of iron ore to China rose dramatically in the last six months of 2009 as Chinese steel production shot up due to its government implementing a $586- billion stimulus package, most of which went into infrastructure building as well as its fast expanding automobile industry.

Indian iron ore exporters, who were selling the mineral at the spot market, booked heavy profits as cash prices of 62 per cent iron-content exported to China rose to record levels to reach $131.20 a metric ton during the first week of this month.

According to the Steel Index, this price was the highest in at least 13 months and about 50 per cent higher than the contract prices signed by the big three miners with Japanese and Korean mills for last year.

Since the shipping cost from India is far lower than from Australia, South Africa or Brazil, China prefers to procure higher quantities of its iron ore supplies from India.

China had even proposed a long-term agreement with India on numerous occasions for importing iron ore in line with the benchmark contracts it signs every year with the three big miners (See: China eyes long-term iron ore deal with India as prices look north). The benchmark price is a price fixed for the entire year and is generally much lower than the spot market price. 

India  has so far ignored the Chinese requests, since it wants to preserve as much of its significant resource as possible for the future as steel makers have for long been demanding reduction in iron ore exports to ensure a secure supply of the mineral for their steel plants.

India, the world's fifth largest producer of steel, is expected to produce about 60 million tonnes in the current financial year till March 2010. Till 2012, India's steel consumption is expected to grow at nearly 16 per cent annually.

The National Steel Policy has forecast the demand for steel to reach 110 million tons by 2019-2020, while global analysts have forecast India's demand to touch 124 million tons by 2012 and 275 million tons by 2020, which could then make the country the world's second largest steel maker after China.

The main producers of steel in India like Tata Steel, SAIL, RINL, ESSAR, ISPAT and JSW Steel have been asking the steel ministry to impose duties on iron exports so that their demand is met locally instead of having to spend a foreign exchange in importing iron ore to secure steady supplies.

While Tata Steel, the world's sixth largest steelmaker, has secured enough iron ore supplies within India to meet its local needs, it has been acquiring coal and iron ore assets abroad for its European subsidiary Corus.

Other steel makers like Jindal Steel and Power, which is currently locked in a bidding war with a small time Chinese firm for acquiring Australian coal miner Richfield Rocklands, have to pay a heavy price for acquiring iron ore assets overseas. (See: Jindal again matches Meijin's takeover offer for Australia's Rocklands)

Moreover, the Indian iron ore mining industry has been overtaken by illegal miners, most of who flourish under the patronage of powerful politicians, who are either involved in mining themselves or granting iron ore mining licences.

The central empowered committee (CEC) on environment had indicted Andhra Pradesh tourism minister Janardhan Reddy's Obulapuram Mining Company (OMC) and other companies last year over illegal mining in the Bellary Reserve Forest area and also indicted the Andhra Pradesh government for trying to cover up the illegal mining of iron ore (See: Andhra' minister Reddy defies state, SC over illegal mining).

It was widely reported in the media last year that illegal mining by Janardhan Reddy's OMC had caused a loss of Rs10,000 crore to the state last year.

In neighbouring Orissa, the state government had initiated similar crackdowns on as many as 128 illegal iron ore mining operations.

The previous chief minister of Jharkhand, Madhu Khoda is facing a graft probe by the Central Bureau of Investgation for having granted lucrative licences for iron ore mines during his tenure. (See: Investigations uncover network of operatives behind Koda's operations)