UPDATE 2-India keeps ban on Goa iron ore mining, allows inventory sales
* Court allows auction of 11.46 mln T from inventory
* Sets up panel to decide on Goa iron ore output cap
* Move unlikely to affect global iron ore prices
NEW DELHI, Nov 12 (Reuters) - India's Supreme Court has maintained a 14-month ban on iron ore mining in top producing state Goa but allowed the sale of more than 11 million tonnes of material that sat in stockpiles.
Restrictions aimed at clamping down on illegal mining have slashed output and shipments from India, previously the world's third-largest exporter with over $7 billion a year of iron ore supplied mostly to China's steelmakers.
The world's top miners, Vale, Rio Tinto and BHP Billiton , have stepped into the vacuum left by India to boost sales to China, Japan and South Korea.
The court ruled on Monday that 11.46 million tonnes of inventory held by miners in Goa could be auctioned.
The ore is likely to be exported as it is low-grade material unsuitable for most Indian steel mills, analysts said. The volume is a fraction of the 1.1 billion tonne iron ore export market so it is unlikely to have much impact on international prices, analysts and traders said.
Sellers would have to offer steep discounts to move the ore, given plentiful global supplies and thin appetite for lower grades, they said.
"With the tougher environmental regulations this year in China, that ore is getting a lot more difficult to use, so what we're seeing is mills chasing better-quality material," said Graeme Train, a commodity analyst at Macquarie in Shanghai.
"I think the Chinese are less interested in it than they have been in the past. I think that the discount on this low-grade material will be much wider than it was in 2012," he said.
Spot iron ore prices have fallen about 15 percent from this year's peak of near $160 a tonne as a slower economy curbs Chinese demand, while Rio Tinto and BHP Billiton continue to increase output.
The court also set up a panel to determine an output limit for Goa. The panel is expected to submit an interim report by Feb. 15, 2014.
"We are setting up a six-member expert committee to study the cap on production based on carrying capacity of roads and such," Justice A.K. Patnaik said.
While analysts expect a gradual recovery in Indian exports over the next two years, the pace is likely to be modest and leave it far from the record high of more than 117 million tonnes set in the fiscal year through March 2010.
Macquarie's Train forecast Indian exports of 25 million tonnes in 2014 and possibly up to 40 million the year after.
"We don't see it really going higher than that at this stage, partly because of the restrictions on production. Generally, we see a decline in the appetite for very low-grade ores so I don't think we can see the same kind of volumes coming out of Goa," he said.
Sesa Goa Ltd, India's top private-sector mining company and a unit of London-listed Vedanta Resources Plc , would be the biggest beneficiary if mining resumed in Goa, as it is the largest producer in the state.