Baosteel Group Corp, China's biggest steel maker, started annual iron ore contract talks with Rio Tinto Group on Monday amid expectations prices may plunge, two company executives said.

The companies exchanged views on the economy and industry outlook in a Shanghai meeting, said one of the executives, who asked not to be identified because the talks are confidential. Discussions with Brazil's Cia Vale do Rio Doce and BHP Billiton Ltd will start soon, the second executive said.

Chinese steel makers, the largest consumer of iron ore, may win their first price cut in seven years as a global economic slowdown led to losses and falling demand. Vale, Rio and BHP, who account for three quarters of traded iron ore, need to stave off the cuts to support profits as metal prices plunged.

Iron ore producers "will have to give a fair bit back this year," said Ken West, a partner at Perennial Investment Partners Ltd in Melbourne, who helps manage the equivalent of US$1.9 billion, including Rio shares.

Gervase Greene, a spokesman for the iron ore unit of London-based Rio, declined to comment.

China will ask for a "big drop in iron ore prices," Shan Shanghua, secretary-general of the China Iron and Steel Association, said last month. Baosteel represents Chinese mills in talks.

The mills are also requesting that the new contract prices take effect retrospectively from January 1, instead of from April 1, Shan said on Monday in a Bloomberg News interview. Prices, which jumped as much as 97 percent last year, should also be reviewed more regularly, he had said in December.

Typically the talks can last for months before the firms agree on prices. This year's talks will be difficult and take a long time, one of the executives said. The firms didn't discuss prices, the executives said.

(Shanghai Daily January 14, 2008)