UPDATE 1-India's Goa should cap iron ore output at 20 mln T/yr -court panel
* Recommended cap is less than half peak output
* But still likely to feed global iron ore surplus
* Supreme Court expected to approve suggested limit (Adds comment, detail)
NEW DELHI, March 26 (Reuters) - Iron ore production in Goa, usually India's top exporting state of the raw ingredient for steel, should be capped at 20 million tonnes a year when an 18-month old mining ban is lifted, a court-appointed panel said, less than half peak output and curbing potential shipments to key buyer China.
But even with that limit, additional supply from Goa could further pressure iron ore prices in a global market expected to be in surplus this year as top miners boost output and Chinese demand slows.
India's Supreme Court is likely to implement the recommendation from the panel, which it appointed in November to look at lifting the ban that was imposed to curb illegal mining. The court earlier allowed the sale of about 15 million tonnes of iron ore that had sat in a stockpile.
The panel also said in a report seen by Reuters that Goa should consider setting up a state iron ore mining company to minimise environmental damage by private miners.
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.
A ban on production and exports imposed in September 2012 in Goa, 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.
Goa's chief minister said in February he expected mining to resume before monsoon season starts in June, and that the state could produce 25 million tonnes per year on a "sustainable basis".
Sesa Sterlite, India's largest private sector iron ore mining company, said earlier this month it might have to cut jobs if production was limited by the court.
A Sesa Sterlite official, who did not want to be identified, said the production cap was likely to be temporary as the panel had not had adequate time to study mining's impact on the state.
"Till the scientific study by this committee is completed, which may take about 12 months more, the mining activity as directed by the court will be strictly monitored and regulated" the panel said.
India was once the third largest exporter of iron ore, but has now slipped to No. 10. (Reporting by Krishna N Das; Editing by Malini Menon and Joseph Radford)
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