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Miners ask for 40% iron ore price rise

Australia's Rio Tinto and BHP Billiton are asking steel mills in Japan and South Korea to accept a 40% rise in the contract price of iron ore for 2010, a Chinese newspaper said, citing sources.

Traders said the levels looked reasonable, but the steel companies in Japan were not immediately available to comment when contacted by Reuters.

The 21st Century Business Herald quoted a source close to the two companies as saying the first round of talks between the miners and their Japanese and South Korean customers had already been completed.

The Japanese and South Korean mills have accepted that prices must rise this year, and the issue remains by how much, it said.

The newspaper added that Chinese mills -- led in the talks by Baosteel -- were unwilling to accept an increase of more than 30%, and were looking for a price rise in the region of 20-30%.

The China Iron and Steel Association said at the end of last year that foreign miners were expected to seek a 20-30% increase in benchmark prices for 2010, and made clear that such an increase was unacceptable.

Baosteel refused to comment, but a trader based in eastern China said the figures being suggested on both sides were within expectations.

“I think 40% sounds like a reasonable figure to me, but of course the steel mills will say they can't accept more than 30% because that is part of the negotiation process.”

Chinese media reports on Tuesday suggested that talks between Chinese steel firms and their major iron ore suppliers had resumed this week in Singapore, but neither the miners nor the mills could confirm this.

Analysts have suggested that Chinese steel mills should take advantage of a recent decline in spot iron ore prices by agreeing a 2010 contract price as soon as possible.

But the trader said it was unlikely the two sides could hammer out a settlement so quickly.

“It is probably now a good time to strike up an agreement but you have to realize that this is a very complex process involving a huge Chinese steel industry -- they aren't going to settle early.”

Last year's talks led by CISA ended in stalemate, with the association being criticized over its inflexible negotiating tactics, when its attempt to strongarm the miners into offering a lower “China price” ended in failure.

Chinese steel firms were eventually forced to accept the “interim” benchmark price agreed by Rio Tinto with Japanese mills. (Reuters)