Indian iron ore miners may face 50% royalty increase

The Indian government is looking at increasing royalty fees on iron ore companies by 50%, Bloomberg reports.

This would require miners to give provinces 15% of their sales revenue, rather than 10%.

The Indian mining industry has responded to the proposal with claims that the measure would hit states' revenues. The Federation of Indian Mineral industries suggested that the royalty be lowered to 7.5% in order to promote growth at a time when iron ore companies are facing decreased demand and lower prices.

Miners and steelmakers could also lose some competitiveness on the international market if the proposal is adopted, industry representatives said.

The cabinet will deliberate the panel's recommendation later this month.

Meanwhile, iron ore prices are looking weak with China hinting that it might buy less of the metal in the coming months.

The Ralated Article: Iron ore price can't escape metals sell-off

The iron ore price declined 1.7% to back below $120 on Friday, ending an almost 7% rally that began last week.

The benchmark import price of 62% iron ore fines at China's Tianjin port shed $2.00 to trade at $118.60 a tonne according to data supplied by The Steelindex.

While the looming end to US central bank stimulus sent precious and base metals prices plummeting yesterday, the iron ore price is primarily driven by events in China.

Yesterday, the country's closely watched purchasing managers' index (PMI) showed a decline in manufacturing activity due to decreases in both production and demand.

Most analysts predict a steady decline in the price of iron ore towards the end of this year and into 2014 on the back of a slowdown in China which consumes more than 60% of the 1.1 billion tonne a year seaborne trade.

While waning Chinese demand is behind the latest retreat, the price of the steelmaking raw material in unlikely to hold up against vast new supplies coming on stream.

Despite the softer price – iron ore is off 25% from 2013 highs hit in February – just yesterday BHP Billiton, world number three iron ore producer, announced a $1.5 billion deal to expand its Jimblebar mining hub.

Jimblebar will produce 35 million tonnes at full tilt upping BHP's Australian export capacity to 220 million tonnes.

In May Rio Tinto (LON:RIO) CEO Sam Walsh said the company's board is likely to approve a further $5 billion expansion of its Pilbara operations in the fourth quarter taking its annual capacity to 360 million tonnes from this year's target of 290 million tonnes and 237 million tonnes at the moment.