Biman Mukherji

NEW DELHI (Reuters) - Iron ore exports are likely to be dented by a new duty in the federal budget, which partly meets a demand from domestic steelmakers to curb ore sales overseas to protect domestic supplies.Finance Minister P Chidambaram told lawmakers in his budget statement that a duty of Rs 300 per metric tonne would be charged on iron ore exports to help preserve the country's reserves.

"Our competitiveness will be affected by this. Foreign buyers may say that you have to reduce prices to the extent of the tax," RK Sharma, secretary general of the Federation of Indian Mineral Industries, told Reuters.

Chidambaram added that an export duty of Rs 2,000 per metric tonne had been imposed on chromium ores and concentrates, which are used in making stainless steel.India's total iron ore reserves are estimated at about 23 billion tonnes.

India's ore industry says that the local industry does not have adequate capacity to utilise mine output.More than half of India's iron ore production is exported, with a major portion going to China, where it is sold in the spot market where it commands a premium over long-term contracts.

"It is very simple. Our profits will be down by Rs 300 per metric tonne," said a senior official, who did not want to be identified, with a leading domestic iron ore processor.An official with the Goa Mineral Ore Exporters Association said the body was trying to ascertain whether the duty would be levied on all grades of iron ore.The domestic steel industry is growing at about 10 percent annually with domestic companies ramping up capacities in line with the country's more than 9 percent economic growth.

"The positive in the budget is the iron ore export duty. Iron ore prices bought from the market will come down for Indian companies which don't have their own mines," Seshagiri Rao, chief financial officer of JSW Steel, told Reuters.

He added the reduction of import duty on high ash coking coal to zero percent from five percent would also help the steel industry.But a reduction in customs duty on seconds and defectives of iron and steel to 10 percent from 20 percent could lead to greater imports of "inferior steel", Rao said.