Rio Tinto still in iron ore negotiations with Chinese

World No. 2 iron ore miner, RioTinto is still in talks to sell iron ore at fixed price to China dousing speculation that parties give up on June 30 deadline. Meanwhile premium price for spot iron ore over benchmark grows.

SYDNEY(Reuters)  - 

Rio Tinto (RIO.AX: Quote), the world number-two iron ore miner, is still in talks with Chinese steel mills over iron ore prices, the firm said on Monday, dousing speculation that both sides had given up on a June 30 deadline.

Iron ore miners and their Chinese customers have until Tuesday to reach a pact on contract prices for the current fiscal year, but analysts have said the two sides appear too far part at this late hour to strike a deal in time.

"We are officially still in negotiations," a Rio Tinto spokesman told Reuters when asked if the parties had given up trying to hammer out a deal by the deadline.

Spot prices delivered in China have risen around 25 percent this month to a four-month high above $80 a tonne, adding around $5 in the last week, on expectations millions more tonnes will hit the market unless the miners and mills reach agreement.

Spot prices are now trading at $12-$15 a tonne over benchmark prices already set separately with Japanese and South Korean steel mills, which recently agreed a 33 percent price cut.

The higher spot price could be encouraging producers to take a harder line with Chinese steel mills, which are holding out for a minimum price cut of 40-45 percent.

Rio Tinto and world No. 3 iron ore miner BHP Billiton (BHP.AX: Quote) (BLT.L: Quote) have argued against a benchmark price set below the spot level, saying it is unfair to producers and fails to accurately reflect market demand.

If the miners and Chinese mills reach a deal by Tuesday, the contract price would be backdated to April 1 and run until March 31, 2010.

BHP Billiton declined to comment on the state of play.

"We could see a lot more emphasis on the spot market next week," said DJ Carmichael & Co mining analyst James Wilson.

"That translates into volatility and that will be a positive for the price."

The Australians want the mills to agree to a 33 percent price cut over last year, in line with benchmarks already set with Japan's Nippon Steel (5401.T: Quote) and JFE (5411.T: Quote) and Posco 005490.SK of South Korea or buy ore on the spot market.

(Reporting by James Regan, additional reporting by Miyoung Kim in SEOUL; Editing by Mark Bendeich)

© Thomson Reuters 2009 All rights reserved

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