Chinese steel makers are asking Cia. Vale do Rio Doce to reduce iron ore contract prices instead of raising them for a second time this year as they lower production, the China Iron & Steel Association said.

"Some mills want to renegotiate prices with Vale," Shan Shanghua, secretary-general of the association, told Bloomberg News. Rio de Janeiro-based Vale had settled pricing for 2008 with Chinese steel mills in February. "The mills are not asking other long-term ore suppliers to cut the prices." Calls to Vale's China office weren't immediately answered.

Vale, the world's biggest iron ore exporter, wants to increase prices for Asian mills to match what European steel makers are paying even as the credit crunch slows global growth. Cash prices of iron ore imported by China, the world's biggest buyer, plunged 20 percent last week, the most since at least 2006, as steel makers reduce production.

"Shrinking demand is the key bargaining chip for steel makers to ask for a lower price from Brazil," said Xu Minle, a Shanghai-based analyst at BOC International Ltd.

"Debates on the contract prices this year will probably end up with no changes. The falling market will affect next year's contract-price talks."

Shougang Corp, China's biggest maker of steel-wire rods used in buildings, has asked mining companies to slow iron-ore shipments because it's cutting production, Tan Yixin, a Shougang iron ore manager, said yesterday.

Chinese mills are already reducing demand for iron ore and asking miners to postpone deliveries because of tightening credit facilities, Mt Gibson Iron Ltd, an Australian producer, said earlier this month.

(Shanghai Daily October 17, 2008)