India’s top iron ore-producing state is increasing quality-control checks after some miners were found to be misrepresenting grades in order to pay lower royalties, according to a document seen by Bloomberg, a crackdown that could hit domestic and export sales.

The Directorate of Mines and Geology in the eastern state of Odisha has asked local officials to explain lapses in verifying ore grades after inspections found repeated instances of misrepresentation or falsification, according to the July 6 memo, confirmed by people familiar with the matter. The state is among the country’s top exporters of lower iron ore grades to China.

The directive covers key mining districts, including Joda, Koira and Keonjhar, and lists mines leased to steelmakers such as JSW Steel Ltd., Tata Steel Ltd., ArcelorMittal Nippon Steel India Ltd., Steel Authority of India Ltd., Jindal Steel Ltd. and state-owned Odisha Mining Corp., among those flagged for alleged misreporting, the notification showed.

Odisha government did not respond to requests for comment on the document or its content. Spokespeople for the companies did not reply to emails seeking further information.

India is not a major iron ore exporter — it accounts for only about 2% of imports into China, the world’s top buyer, and most of its output is consumed domestically. However, the country makes up a far larger slice of the low-grade ore used by Chinese mills to reduce costs. Excluding pellets, about 90% of low-grade ore shipments from Odisha are bound for China, according to commodity intelligence firm BigMint.

According to the memo, the Odisha government gave local officials three days to explain the lapses or face disciplinary action.

Over the past weeks, enforcement and control has tightened, prompting some local mine operators to hold back fresh sales, tightening spot supply and leading to a buildup of ore stockpiles at producer sites, BigMint said.

“The current crackdown appears focused on strengthening compliance and revenue collection rather than restricting production,” said Isha Chaudhary, a director at Wood Mackenzie. However, “tighter inspections could cause short-term logistical delays and influence the reported grade mix reaching the market,” she said, adding supply impact would likely be temporary as miners adjust.

Iron ore royalties are set at 15% of the average sale price. That means cheaper grades — those with iron content below 55% — incur lower levies than the pricier ones, with a metal content of 65% or more.

Odisha lost an estimated 41.6 billion rupees ($436 million) in royalty revenue during the fiscal years ending March 2021 and 2022 because of iron ore undervaluation, according to a March report by the government auditor, Comptroller and Auditor General of India. The CAG flagged an abnormal drop in reported ore grades in six mines, of which three are leased to JSW Steel.

(By Katharine Gemmell and Preeti Soni)