By Neha Arora
NEW DELHI (Reuters) - A government-appointed panel has proposed setting up India's first iron ore exchange to determine the domestic sale price of the key steelmaking raw material, according to a document reviewed by Reuters and a source with direct knowledge of the matter.
After the Ministry of Mines pointed out that some iron ore miners tried to keep the average sale price artificially low to pay lower royalties to the government, the federal government late last year formed a panel to work out an "alternative mechanism" to determine domestic iron ore prices.
"As a long-term measure to solve the issue of transparency in the returns being received, (the) Ministry of Mines should develop a National Iron Ore exchange, mandating the buying and selling of iron ore on the online platform," the panel said in its recommendations, according to the document.
Details of the panel's recommendations have not been previously reported.
The proposed exchange would record real-time transactions and physical delivery of iron ore, the document said.
"Once the exchange is implemented, ASP (average sale price) for each state and grade can be auto-published every month, based on the weighted average of monthly sales on online platform," it said.
Currently, prices of the same grade of iron ore differ widely across the country, creating an anomaly which the panel believes makes it easier for miners to lower rates artificially to avoid higher royalty payments to the government.
India's cabinet will consider the recommendations of the panel, said the source who could not be named because the proposal is not public.
The federal mines ministry did not immediately comment on a Reuters email seeking comment.
The panel has also recommended the use of blockchain technology at the exchange, according to the document.
The technology allows stakeholders such as miners, traders, buyers, and government agencies to quickly and securely share verifiable information.
The panel did not favour using an international index to determine the average sale price for iron ore.
"Not only (is the) international iron ore price is highly influenced by (the) Chinese economy and steel demand, but also has been highly volatile in comparison to domestic prices," the document said.
"Linkage of iron ore ASP with the international price has serious repercussions for raw material planning and export competitiveness for (the) domestic steel industry."
India is the world's fourth-biggest iron ore producer and also ships the majority of its iron ore to China.
In top iron ore consumer China, sellers use a mix of reference points such as the benchmark from S&P as well as the futures index and other local indices for domestic transactions.