Iron nugget is produced from iron ore fines and pulverised coal through the ITmk3 process patented by Kobe Steel, and can be used as a raw material in electric arc furnaces to make steel.

A Kobe Steel spokesman said the company was looking to market the technology and set up its first commercial plant. The nature of Kobe's prospective partnership with the Chowgule group could either be a technology transfer or a joint venture. The size of the facility being talked about is 500,000 tonnes and it will be set up in about two years.

"Mining companies may also find it attractive to produce a value-added product for sale rather than merely supplying raw materials such as unprocessed iron ore and coal," he said.

The capital investment in the ITmk3 process is half the cost of conventional iron-making technologies used in blast furnaces with associated facilities, including coke ovens, oxygen generation and supply equipment.

The technology could be a solution for the steel and mining companies. The steel companies, which do not have captive mines are increasingly looking to use iron ore fines as raw material. For the mining companies, there would be takers for the excess fines.

Around 60 per cent of the total iron ore produced in India is constituted of fines and another 5 per cent or more is generated in the process of handling and transportation, while fines account for only about 41 per cent of the total iron ore consumption.

If Kobe Steel finally decides to set up the plant in India, it would be the fourth foreign steelmaker to invest in India, after Posco, Mittal Steel and Sinosteel.