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Moody's Investors Service on Monday said that the imposition of higher export tax on iron ore and several intermediate products like pellets will raise costs for steel mills.

However, strong domestic steel demand provides arbitrage opportunity for a portion of such exports to be diverted for domestic finished steel production, Kaustubh Chaubal, vice-president, corporate finance group, told Reuters.

A mining industry body has said that the increase in export taxes on iron ore will lead to large surpluses at home, and mainly hit producers of low grade ores that depend on overseas markets.

"This is self-defeating, actually, because there will be a lot of stockpiling," RK Sharma, secretary-general of the Federation of Indian Mineral Industries (FIMI), said, adding that exports to China were also declining because of low grade quality of Indian ore.

On Saturday, the Centre has raised export tariffs on new iron ores and concentrates to 50% from 30%, and duties on pellets to 45% from zero. The government also removed import tariffs on coking coal and coke.

Benchmark iron ore futures in China - the world's top consumer of the ore - rose about 7% in early trade on Monday, tracking their biggest daily jump in two-and-a-half months, as India is one of their major non-mainstream iron ore suppliers.

Production by global miners, including BHP, Rio Tinto and Fortescue Metals Group in Australia, has been disrupted by supply-chain snags and pandemic-induced labour shortages, while Brazil's Vale has also had to weather problems.

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