Indian steel firms have asked the government to increase an export duty on iron ore to 35 percent from 15 percent to slow exports and ensure supplies in the domestic market, an industry official said on Tuesday.

    Steel makers say their profit margins have been squeezed by rising prices of raw materials such as iron ore and coke, as well as government pressure to hold prices to help fight inflation.

    But local miners argue demand for Indian iron ore from the main buyer China has dropped sharply in the past six weeks as even the existing the duty, introduced in June, had made rival suppliers more attractive.

    "We have proposed an increase in the export duty on iron ore," said D.S. Rawat, secretary general of the Associated Chambers of Commerce and Industry of India, an industry body which has been lobbying for the steel sector.

    "We have given a written communication to the finance minister and commerce minister for urgently increasing the duty rate on iron ore exports from 15 percent to 35 percent."Currently the government levies a uniform export duty on iron ore, which replaced a fixed levy of 50 rupees ($1.13) per tonne on lower grades of iron ore and 300 rupees on higher grades.

    Rawat said the proposal to hike the tax was handed over to government officials last week.

    Domestic mining companies say rival supplier Australia has made deeper inroads into the Chinese market as it is able to sell iron ore at $25 per tonne cheaper than Indian supplies costing about $115 per tonne for 63 percent iron content grades.

    India exported about 93 million tonnes of iron ore in the fiscal year ending March 2007, out of which about 75 percent went to China. 

    The mining industry says exports to China could halve in the financial year ending March 2009 in part due to the impact of the export tax.

    Last week, iron ore suppliers met with secondary steelmakers and mining and steel industry officials to examine the situation and discuss possible measures to contain prices.

    They are due to meet again in the eastern city of Kolkata.

    Rawat said the steel firms' proposal should not be seen as a retaliatory measure against China, which this month increased the export duty on metallurgical coke, imported by Indian producers of pig iron and some steel firms.

    The duty was raised to 40 percent from 25 percent, sharply raising the costs of Indian pig iron producers.

    "For the last four months, we have been holding the price band despite the fact that prices of metallurgical coke and iron ore have been going up," said an official at steel firm Ispat Industries Ltd, who could not be named.

    Rawat said a higher iron ore export duty would help preserve the country's natural resources for the benefit of India's economy.

    "If you conserve this, a lot of investors will be coming to states such as West Bengal, Karnataka, Orissa and Jharkhand," he added.

    Global giants like POSCO of South Korea and world leader ArcelorMittal are among the investors hoping to finalise steel projects in India.

    India's iron reserves are estimated at about 24 billion tonnes.