UPDATE 1-India state plans iron ore transport ban soon

(Adds official's quote, price, byline)

By Ruchira Singh

NEW DELHI, July 28 (Reuters) - India's southern state of Karnataka is set to soon ban transport of iron ore destined for overseas markets, a senior state government official said, in a step that would crimp exports of the steel-making raw material.

Any clampdown on ore exports by India could worry the $88-billion international market, firming up prices and prompting China, home to the world's largest steel industry, to turn to top producers Australia and Brazil.

"The order can come this evening or tomorrow morning," said the official, who declined to be named because government officials are not authorised to speak to the media. "I think it will be with immediate effect."

Earlier on Wednesday, the Press Trust of India news agency quoted the state's chief minister, B.S. Yeddyurappa, as saying he was imposing such a ban, but gave no further details.

"An order banning issue of permits to transport iron ore for exports will be issued tomorrow (Wednesday). However, firms engaged in mining are free to supply the material to steel plants in the state for value addition," Yeddyurappa was quoted as saying.

The Indian move, designed to stamp out illegal mining and tax evasion, will hit supplies from Karnataka, which mined nearly 46 million tonnes of iron ore, or a fifth of total Indian production of 215 million tonnes in the year to March 2009, data from the Federation of Indian Mineral Industries shows. [ID:nSGE66Q0H0]

The ban was likely to stay in place until a panel appointed to probe illegal mining in the state submits its report, the Karnataka official said. No date has been set for the report.

The Steel Index 62 percent iron ore index .IO62-CNI=SI stood at $136.30 a tonne on Tuesday, up $2.90 from the previous day as demand inched up from key consumer China. (Editing by Clarence Fernandez)