Russia mulls iron ore and rolled steel export duties

MOSCOW, Jan 27 （Reuters） - Russia's Ministry for Economic Development has proposed setting export duties on iron ore and rolled steel and forcing steelmakers to sign long contracts with clients in a bid to prevent price rises, a ministry letter said.

Analysts have warned the tariffs will damage the sector, causing a production decline.

"We believe it is possible to apply customs and tariff regulation mechanisms to the metals sector," the letter said. "We propose changing the tariffs on iron ore hot and cold rolled steel as a priority measure."

The letter proposes a tariff of 10 percent of the customs value for steel roll and 30 percent for iron ore, or a floating tariff pegged to international prices.

It proposes steelmakers sign long term contracts with end-users. Prices would either be fixed or pegged to international prices or production costs, which include the price of ore, coal and scrap.

It proposes raising the mineral extraction tax to 8.8 percent from current 4.8 percent as an alternative measure.

Steelmakers were able to send their own proposals to the ministry until Jan. 17 and may discuss them with the ministry officials next week.

The ministry believes that the tariff may earn up to $1.4 billion for the state coffers.

"It looks like the tariff initiative appeared in response to repeated complaints from carmakers of rapidly rising steel prices," Olga Okuneva, an analyst with Deutsche Bank, said in a note.

Export tariffs will not cut domestic prices, as producers will simply reduce output, she added.

"We do not see any economic logic in introducing the tariffs on Russian steel," agreed UralSib bank's analyst Dmitry Smolin in a separate note.