SINGAPORE/SHANGHAI, Jan 12 （Reuters） - Offers to sell Indian iron ore in China rose half a percent on Wednesday, as key indexes scaled fresh eight-month peaks, on supply worries after India's top producer said it was considering banning exports of the steelmaking ingredient.
Orissa's state government was looking at submitting a proposal to the federal government to ban iron ore exports to meet demand of the domestic steel industry.
India is the world's third-largest iron ore supplier and exports about half of its annual output of around 200 million tonnes, mostly to China, the world's top buyer.
Supplies from India had already been tight after the southern state of Karnataka banned exports from last July and a similar move by Orissa could drive prices even higher as it forces top buyer China to rely more on supplies from Australia and Brazil, the two biggest exporters.
Bans in both Karnataka and Orissa would "dramatically reduce spot iron ore supply and boost prices", Commonwealth Bank of Australia said in a note.
"Chinese steel mills will definitely buy more from Australia and Brazil if India continues reducing exports, but other smaller suppliers like Iran, Indonesia and Venezuela will also take advantage to boost their presence in China," said Hu Kai, an iron ore analyst with Umetal.com.
Australia, Brazil and India together accounted for 80 percent of Chinese iron ore imports in January to November, with Indian exports at about 16 percent, based on the latest available Chinese government data.
The next three biggest iron ore suppliers to China are South Africa, Iran and Ukraine, whose combined exports accounted for 9 percent of the total.
Tight Indian supplies boosted offers for Indian ore with 63.5 percent iron content to $181-$184 a tonne, including freight, on Wednesday from $180-$183 the previous day, said Chinese consultancy Mysteel.
Firm Chinese buying ahead of the Lunar New Year in early February also buoyed prices, but gains could be capped as smaller steel mills normally maintain inventories of just up to one month.
"Steel mills have prepared for price increases as the Chinese New Year approaches, and they are buying more this week," said an iron ore trader in Beijing.
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The key iron ore indexes, which track spot transactions in China, rose to their highest levels since May at the close of trade on Tuesday.
The Platts 62 percent iron ore index IODBZ00-PLT ticked up 25 cents to $175.75 a tonne on Tuesday, and The Steel Index 62 percent benchmark .IO62-CNI=SI rose $1.20 to $174.60.
Metal Bulletin's 62 percent gauge .IO62-CNO=MB gained 68 cents to $172.34.
Indian traders said it was unlikely for the Orissa state government to immediately ban iron ore exports, particularly fines, or ores less than six millimetres in diameter used to make pellets, because most domestic plants use lumps.
"There are very few plants making pellets in India and while slowly pellet plants are being built, it will take two to three years to set up and start production," said Dhruv Goel, managing partner at iron ore trader Steelmint in Orissa.
"So right now, there's huge production of fines and demand is very limited. If they ban exports of these fines, they have to dump it somewhere and it will cost them.
"Besides, the government is getting huge revenue from the export duty so it's very unlikely for an immediate ban to be implemented," said Goel.
In the forward swaps market, most contracts slipped on Tuesday after recent gains.
The February contract , cleared by the Singapore Exchange, eased 42 cents to $170.58 a tonne, and March was off 17 cents at $169.00. （Editing by Himani Sarkar）
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