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Mining groups face cuts to iron ore prices
By Javier Blas in London and Patti Waldmeir in Shanghai

Published: October 31 2008 02:00 | Last updated: October 31 2008 02:00

Iron ore miners face the prospect of the first price cut in seven years as steel production in China and elsewhere plunges amid the global downturn.

After an informal meeting last week at a conference

in the Chinese city of Quingdao, traders and bankers said a cut of 10-20 per cent was a likely outcome of the formal negotiations, due to begin in November, for annual contracts.

However, these people warned that chaotic global economic conditions made any forecast tentative.

After this year's record 85 per cent jump in iron ore prices, a price reduction would damp the cost of cars, machinery and construction materials, contributing to lower inflationary pressures as central banks slash rates.

Bankers said a price cut would make only a small dent in miners' revenues as ore prices have jumped more than 300 per cent in the past five years.

Any cut would be the first reduction since iron ore prices fell 2.4 per cent in 2002, when the global economy slowed in the wake of the dotcom bubble.

The first formal contacts of the secretive - and often acrimonious - annual negotiations will take place between Chinese steel millers led by Baosteel and miners Vale of Brazil, Rio Tinto and BHP Billiton.

Chinese steelmakers appear to be pressing for a quick agreement, taking advantage of today's soft demand and low prices in the spot market.

But mining executives said they were in no rush to settle until the second quarter of next year, betting that demand will have recovered by then, helping them to avoid a price cut.

NJ