NEW DELHI/SINGAPORE (Reuters) - The Supreme Court lifted a 19-month old ban on mining in Goa, the top iron ore-exporting state, on Monday, a move that will put more pressure on global prices although it capped annual output in the state at 20 million tonnes.
The additional supply from Goa, which exports nearly all of its output, would add to an expected surplus of iron ore this year as big mining companies such as Rio Tinto (RIO.AX) and BHP Billiton (BHP.AX) boost production while demand from top consumer China slows.
The ban was imposed in 2012 as part of a drive to curb illegal mining in Goa. It was lifted on the recommendation of a panel appointed by the Supreme Court to look into the mining industry and the panel suggested capping production at 20 million tonnes to protect against illegal activity.
Shares of Sesa Sterlite SESA.NS, India's largest private iron ore miner, surged more than 7 percent on news that the ban had been lifted.
"In itself 20 million tonnes is not a huge amount, but it's just another contributor to rising supply," said Graeme Train, commodity analyst at Macquarie in Shanghai.
The question to ask, said Train, may be whether Chinese steel mills would be willing to take on the low-grade iron ore from Goa given Chinese producers' growing preference for higher quality material, in step with Beijing's anti-pollution campaign.
"Chinese mills are looking for more high-grade material and the discount for low-grade material is starting to open up so it'd be interesting to see if they (India) can actually get 20 million tonnes into the market," he said.
At around $117 a tonne currently, iron ore prices .IO62-CNI=SI have fallen more than 13 percent this year as a slowing Chinese economy curbs its demand for the steelmaking raw material.
Morgan Stanley sees global seaborne iron ore supply exceeding demand by 79 million tonnes this year, with the surplus doubling to 158 million tonnes in 2015.
A panel appointed by Supreme Court earlier recommended the 20-million-tonne production cap. The court earlier allowed the sale of about 15 million tonnes of iron ore that had sat in a stockpile.
That iron ore that was auctioned is being exported, said Prasanna Acharya, director for the directorate of Mines and Geology.
"Exports will continue. As soon as the new ore comes it will get exported," he said.
A ban on production and exports in Goa imposed in September 2012, coupled with similar curbs enforced earlier in neighbouring Karnataka, have sliced India's iron ore exports by 85 percent, or 100 million tonnes, over the past two years.
India was once the third-largest exporter of iron ore, but has now slipped to No. 10.
While analysts expect a gradual recovery in Indian iron ore exports over the next two years, the pace is likely to be modest and far from a record high of more than 117 million tonnes set in the fiscal year through March 2010.
"The 20 million tonnes is a reasonable quantity to start with. Fresh mining will start after the monsoon and exports of (iron ore) fines may start in September," said Basant Poddar, vice-president of the Federation of Indian Mineral Industries.
The monsoon season runs from June to September.
The top court also asked the Goa state government to create an expert panel and submit a report regarding capping of output and other issues within six months, a three-judge bench headed by justice A.K. Patnaik said.
Reporting by Suchitra Mohanty in New Delhi and Manolo Serapio Jr. in Singapore; Additional reporting by Siddesh Mayenkar in Mumbai; Editing by Anupama Dwivedi and Susan Fenton