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By Alfred Cang
SHANGHAI, Nov 3 (Reuters) - Brazil's Vale, the world's largest iron ore miner, withdrew its demand for a 12 percent price rise for this year's iron ore and agreed to pay freight for some of its Chinese customers, two trade sources said on Monday.
Vale (VALE5.SA: Quote, Profile, Research, Stock Buzz)(RIO.N: Quote, Profile, Research, Stock Buzz), contacted its major clients late last month and withdrew the requirement "silently," after Chinese major steel mills announced major production cuts to weather a slumping steel market in China, the sources said.
"Vale has agreed with several steel mills to carry the freight cost from Brazil to China," one of the sources said, noting that the "informal" agreement did not include a time frame.
The global economic slowdown, coupled with a domestic housing slump, hit Chinese domestic steel demand and exports. Top steel mills in China have cut output and purchased less iron ore, and are readying for an unprofitable fourth quarter.
Lower global steel production also hit the mining sector.
Vale said on Friday that it would cut iron ore output by 10 percent from November as it sees market conditions deteriorating very intensely over the next three to four months.
Vale asked its Asian clients to pay about 12 to 13 percent more for iron ore under 2008 term contracts to bring their FOB prices in line with those paid by European steel mills.
However, Chinese steel mills rejected the demand, saying they could rely on domestically-produced iron ore and that huge port stockpiles could supply the whole industry. They called for imports from the Brazilian miner to be blocked.
Stocks of ore in Chinese ports hit record of nearly 90 million tonnes, equivalent to over two months of imports.
Capesize freight rates on the key route between Brazil and China have fallen to a six-year low of $10.6 per tonne by the end of October, down from above $108 a tonne in June, due to a drop in shipments of iron ore to China.
