India hikes iron ore export duty to 20 pct

Mon Feb 28, 2011 8:47am GMT By Thomson Reuters

* Industry body says exports will be uncompetitive
* Shares in producer Sesa Goa slide

MUMBAI Feb 28 (Reuters) - India hiked export duty on iron ore to 20 percent from 5 percent for fines and from 15 percent for lumps in its budget on Monday in a move to curb exports and likely to push red-hot global prices higher.

India, the world's third-biggest iron ore exporter, wants to conserve the natural resource for domestic consumption.

"This will make the exports of (Indian) iron ore uncompetitive in the global market," said R.K. Sharma, secretary general of the Federation of Indian Mineral Industries (FIMI).

Steel Minister Beni Prasad Verma called for curbs on exports of iron ore on Friday and Karnataka, the country's second-biggest producing state, has a ban on shipments which is currently being contested by exporters in the Supreme Court.

India's iron ore exports have already slumped on the ban by Karnataka, with sales down 24.8 percent in December to 9.7 million tonnes from a year ago.

Exports during the April-December period fell 17.02 percent from a year earlier to 64.4 million tonnes. The country usually exports around 100 million tonnes per year.

Two other states, leading producer Orissa and Chhattisgarh, which accounts for 5 percent of India's annual shipments, have asked the federal government to allow them to ban exports.

The hike in export duty in the budget for the year to March 31, 2012 was widely expected as the country tries to underpin its rapidly-growing economy with investment in infrastructure.

The government would prefer states to focus on better regulation of the sector and incentives for increased domestic use of the resource -- moves which target better illegal production instead of export bans which hurt all producers.

FIMI's Sharma said the export duty would deter buyers.

"This measure could be counter-productive, and would make overseas importers shy away from buying from here," he said.

Shares in iron ore miner Sesa Goa extended losses on the duty imposition to hit a 52-week low.

India hiked freight rates for iron ore exports by 50 percent to 1,500 rupees per tonne on Jan. 27 but kept it unchanged in Friday's Railway Budget.

Spot iron ore prices extended losses on Monday after slumping 5 percent from mid-February last week, with Chinese steelmakers expecting prices to fall further on demand uncertainties.
(Reporting by Siddesh Mayenkar; Editing by Jo Winterbottom)