Karnataka High Court on Friday upheld a ban on iron ore exports, a move likely to see prices spike as the world's third-largest exporter curbs overseas sales to feed expansion of its steel industry.
Maintaining the ban imposed by the state's government since July as part of a crackdown on illegal mining means exports from India will remain low. That would give Australia and Brazil, the two biggest exporters, an upper hand in negotiations with China, the biggest buyer of the steelmaking raw material.
Shipments from Karnataka account for around a quarter of annual iron ore exports from India, the world's third-largest supplier, which ships about half of its yearly output of over 200 million tonnes.
The ban helped prices recover from seven-month lows hit in July and, along with weather disruption in other parts of India delaying shipments and Chinese stockpiling, had supported a recent surge in iron ore prices to their highest levels since mid-May.
Keeping the ban shows India may be about to give up its stature as a major iron ore exporter to spur the growth of its own steel industry led by the high-profile plans of top steelmaker ArcelorMittal and third-ranked POSCO to build steel plants in the country.
Government officials have said ArcelorMittal can start building its $6.4 billion steel plant in Karnataka by December while South Korea's POSCO's planned $12 billion plant in Orissa -- expected to be India's biggest foreign direct investment -- is awaiting approval from the environment ministry.
India's iron ore exports fell 47 percent in September from a year earlier, the sharpest monthly drop in nearly two years. At 3.03 million tonnes, it was the lowest in terms of volume since at least April 2007, largely due to the ban and shipments are expected to fall further going forward.
There has been constant debate in India on the merits of exporting iron ore with miners against export curbs while the steel sector has long lobbied for a total ban to conserve more of the raw material for use by domestic plants.
Fewer cargoes out of India will add to an expected tightness in global iron ore supplies next year, which may force Chinese steel mills to accept higher raw material costs.
The 2008 financial crisis has either cancelled or delayed 300 million tonnes of new iron ore projects, Standard Chartered Bank has estimated, which should fuel a sharp rise in prices from 2011 before a glut spurs a correction from 2014 when new capacities come onstream.