India, China’s largest exporter of iron ore, raised the export duty of the raw material to 30 percent from 20 percent, a rise of almost 50 percent in order to protect the domestic industry. The move is expected to slash exports to China, which is the main importer of Indian ore and increase global prices substantially. Exports are expected to reduce to 50 million tonnes from the projected 65 million this year, as compared to 97 million tonnes which were exported last March.

India is one of the largest exporters of iron ore, while China is the worlds largest steel industry. China counts India as its third largest supplier of the steelmaking ingredient. China imported 68.5 million mt of iron ore from India over January to November 2011, or 11% of its total imports in the period. The shortage is expected to push up global prices by 7 to 10 percent over the current US$140 a ton.

The decision comes with some pitfalls however, according to analysts, although India wants to curb exports of iron ore to reserve them for domestic steel production to boost her infrastructure, the nation doesn’t have the technology to use iron ore fines. Secondly, the export hike and subsequent rise in prices will give Australian and Brazilian suppliers time to consolidate their domination of the global market.

Citing environmental clearances and  illegal mining allegations, Karnataka a state in Southern India had also totally banned the mining and export of iron ore.  India had in February last year also increased both duties on iron ore fines and lumps to specifically cut exports to China.  New Delhi is trying to cut down on illegal iron ore mining and shipments but favours better tracking and monitoring along with higher taxes rather than blanket bans on exports. Such regulatory uncertainty however deflates industry confidence of India being a stable supplier.