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China asks for larger price cut from Australian miners

CHINA, the world's largest buyer of iron ore, will demand a bigger cut in prices from BHP Billiton Ltd and Rio Tinto Group than from Brazil's Cia Vale do Rio Doce after shipping costs plunged, the nation's steel association said.

BHP and Rio almost doubled prices for their ore from Australia last year, exceeding the 71-percent gain Vale won.

"There's no equalization if Australian and Brazilian ores get the same cuts," Shan Shanghua, secretary general of the China Iron and Steel Association, said in an interview with Bloomberg News on Thursday night. "That's unacceptable."

Chinese steel makers are pushing for the first reduction in seven years for benchmark contract iron ore prices as the global recession crimps demand from car makers and builders.

Prices for Australian iron ore may fall at least twice as much as those sold by Vale, Credit Suisse Group AG said this week.

"There's speculation China wants the prices to move back to 2007 levels, which means BHP and Rio should give up the freight compensation they enjoyed last year," said Du Wei, head of iron ore research at Umetal Research Center. "It's reasonable as the freight difference has been narrowed."

Shipping ore costs about US$55 a ton less from Australia than Brazil last June when Chinese steel makers agreed to pay BHP and Rio a higher price.

The contract price for Brazilian iron-ore fines may be unchanged or fall no more than 9 percent, while Australian fines may drop 20 percent, Credit Suisse's Roger Downey said.

Talks to settle this year's prices started last month between Chinese steel makers and producers. Chinese steel makers are also negotiating a change to the format of the price talks, Shan said. Steel makers want to negotiate every six months rather than on an annual basis. Mining companies agree in principle to more frequent price setting, though no accord has been reached, he said.


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