SHANGHAI, Oct. 26 (SMM) -- The Deputy Director Mines of Orissa has reportedly issued a notice to all manufacturers, traders and exporters of two large mines Joda and Barbill in Keonjhar district to stop supply of iron ore. The government of Orissa has been tracking for companies who have been mining and exporting illegally. The DDM of Orissa has asked companies to submit their audited balance sheet along with procurement details for the last four years.

Analysts say the move will definitely impact the steel companies as most of them were looking at sourcing raw material from Orissa. After a mining ban in Karnataka and the situation worsening in Goa, most of the companies were turning for respite to Orissa. However, Orissa's steel industry is facing shortage of supplies and most companies are reportedly not running at full capacity. Earlier, the Orissa government had limited the supply of iron ore outside the state to just 30% due to shortage of raw material. The state produces about 75 million tonnes of iron ore fines and lumps annually. Market participants say that the supply of iron ore will remain tight for the next few days and believe that investments in downstream industries for steel plants using iron ore would be hard to come by if supply of ore is stopped or rendered dear.

Orissa’s Paradip port, ranking next only to Goa port, is the second largest iron ore export port in India. India exported 13.84 million mt of iron ore in the fiscal year 2010, accounting for 13.84% of Indian’s total iron ore export. It was reported that iron ore exported from Paradip port was mainly shipped to China. Due to iron ore supply restriction, iron ore exported from Paradip port declined year by year, recording 14.2% YoY decline in fiscal year 2010 and 13.55% YoY decline to 2.55 million mt from April to June in 2010.

Spot iron ore prices slumped after China's National Day holiday. CFR price of Indian 63.5% fines fell from USD 189.5/mt in early September to USD 147/mt on October 25th, down by USD 42.5/mt. Steelease believes that the real intention behind Orissa’s iron ore supply restriction at this very moment is to push up iron ore prices by controlling iron ore supply.