Supreme Court lifts Karnataka iron ore shipments ban

NEW DELHI Tue Apr 5, 2011 6:44pm IST

A labourer works in an iron factory on the outskirts Hyderabad May 13, 2010. REUTERS/Krishnendu Halder/Files

A labourer works in an iron factory on the outskirts Hyderabad May 13, 2010.

Credit: Reuters/Krishnendu Halder/Files

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NEW DELHI (Reuters) - The Supreme Court lifted a ban on iron ore shipments from Karnataka on Tuesday, freeing up about a quarter of supplies from the world's third-largest exporter as strong demand from China keeps prices firm.

The state had banned shipments of iron ore from 10 ports and stopped its transport to other ports for exports in July last year, citing a drive against illegal mining and the need to preserve the raw material for local steelmakers.

"The court ordered that after April 20 the state government order on the ban will be null and void," said Ankur Kulkarni, a lawyer for S.B. Minerals, one of the petitioners.

Lawyers of both sides said the April 20 date gives the state time to put in place infrastructure such as checkpoints and satellite tracking systems to prevent illegal mining.

Karnataka's government will return to the court in the first week of May to report steps taken to curb illegal mining, an approach the federal government prefers to blanket export bans.

"Once the court satisfies itself with the measures taken by the state it will formalise the lifting of the ban," said Sumeet Goyal, lawyer for iron ore producers and petitioner, MSPL.

India has quadrupled taxes on iron ore exports and raised freight rates to boost the domestic steel industry and create jobs.

But it does not have the technology to absorb all of its low-grade fines locally and a total export ban could create problems of storage besides losing billions of dollars in export revenues.

India ranks behind Australia and Brazil in output with most of its approximately 100 million tonnes of annual shipments landing in China, which has the world's largest steel industry.

India's iron ore exports fell for an eighth consecutive month in February as Karnataka's ban cut sales.

Tighter supply from India had helped global prices soar, with spot prices hitting a record near $200 a tonne in mid-February.

INTERNATIONAL SUPPLIES

Analysts say iron ore prices are unlikely to collapse following the court ruling, with demand from China remaining strong and new additional capacity in the global seaborne market unlikely to come through until 2013 or 2014.

Indian traders agreed prices were unlikely to fall.

"I do not expect exports to rise due to two important reasons. The one is high export duty, while the other is the steep rail freight," R. K. Sharma, secretary-general at the 200-member Federation of Indian Mineral Industries (FIMI), told Reuters.

Prices began to bounce back late last month as Chinese steelmakers replenished run-down inventories.

Spot iron ore prices are up a modest 2-5 percent this year after sliding from the record levels in February.

India produced around 226 million tonnes of iron ore in 2009/10 and exported some 117 million tonnes, mostly to China. Goa is the biggest exporter.

Exporters and miners from Karnataka had first challenged the ban in the state's high court, but lost. They petitioned the Supreme Court in November.

The court order weakens plans by other top Indian iron ore producing states Orissa and Chhattisgarh to ban exports.

Shares in Indian iron ore miner Sesa Goa jumped 6.5 percent to 314.20 rupees after the top court decision. The company is owned by Vedanta Resources which is poised to hear whether it will win government approval to buy a majority stake in Cairn Energy's Indian assets.

(Additional reporting by R. Venkatraman; Editing by Jo Winterbottom and Anthony Barker)

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