China's steel group insists it wants a cut of at least 40 percent in annual term iron ore prices after a news report said Rio Tinto Ltd is offering a smaller discount before new annual contract negotiation ends.

"Our request hasn't changed," said Shan Shanghua, secretary general of the China Iron and Steel Association.

Citing unidentified executives, Bloomberg News said yesterday that Rio Tinto, the world's second-largest iron ore producer, offered an interim 20-percent price cut to major Asian steel customers.

Some Chinese mills have rejected the discount as too small, the report said.

The annual price negotiations have stalled as Chinese mills want a reduction of at least 40 percent to bring prices to below 2007 levels. Domestic mills have posted a combined loss of 770 million yuan (US$112 million) for January and February as steel prices tumbled.

The fiscal year for iron ore contracts started April 1. Typically, steel mills pay for ore at last year's levels until new prices are agreed.

Shan said the association has required mills pay only 60 percent of 2008 term prices as prepayments before new rates are settled. Mills that pay more than 60 percent could face punishment, he said, without elaborating.

News of the 20-percent discount may signal what the world's top three ore producers, which also include Anglo-Australian miner BHP Billiton Ltd and Brazil's Vale, are asking for in the new contract talks. Rio Tinto has declined to comment on the Bloomberg News report.

The three miners account for about three quarters of the global sea-borne trade in iron ore. A price cut this year would end six straight years of increases for iron ore term prices, which rose fivefold during the period.

(Shanghai Daily April 8, 2009)