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bhp, rio face 15% iron-ore price cut

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    Rio Tinto and BHP Billiton, the world's second- and third-largest iron ore exporters, may be forced to cut prices by 15% next year, ending six years of gains, because of slowing demand from steel mills in Asia.

    Contract prices for benchmark Australian ore for the year starting April 1 may fall to 122.96 cents per dry metric ton unit, or about $US78 a metric ton, from a record 144.66 cents, according to the median estimate of 11 analysts surveyed by Bloomberg News.

    "Iron ore prices are obviously going to be softer going forward,'' Paul Adams, head of research at D.J. Carmicheal, said by phone from Perth. "Compared to a year ago, the Chinese steel mills now have the upper hand in negotiations.''

    The worst global financial crisis since the Great Depression has curbed demand from builders and carmakers, damped prices and prompted steel mills in Asia, Europe and the US to curb output. Cia. Vale do Rio Doce, the world's biggest exporter of iron ore, had its 2009 earnings forecast cut by almost a quarter by Goldman Sachs Group.

    ArcelorMittal, the world's biggest steelmaker, said yesterday it will slash production by as much as 35% in the US and 30% in Europe after prices tumbled. The Luxembourg-based company forecast earnings will slide as much as 48% to $US2.5 billion in the fourth quarter.

    "There's no doubt steel production has been cut,'' John Veldhuizen, an analyst at BBY, said by phone from Sydney. "We have probably seen peak commodity prices.''

    Nippon, Baosteel

    Nippon Steel Corp., the world's second-biggest steelmaker, Baosteel Group Corp., China's biggest mill, and South Korea's Posco are among the biggest customers of the three ore producers that control about three-quarters of global supply.

    Rio, battling a $US85 billion hostile bid from BHP, dropped 8.7%, or $7.56, to close at $79.04.

    BHP, the world's biggest mining company, declined 7.6%, or $2.40, to $29.20.

    Cash prices for ore imported by China, the world's largest buyer, slumped for an 11th straight week to at least 13% lower than contract prices. Prices at Qingdao, China's biggest port handling the ore, fell 100 yuan to 540 yuan ($113) a metric ton in the week ended Oct. 31, the lowest since at least June 2006, according to Beijing Antaike Information Development.

    Output in China, the world's largest steelmaking nation, declined 9.1% in September, the Brussels-based World Steel Association said Oct. 22. Global production will fall 5% in 2009, Peter Marcus, managing partner of research firm World Steel Dynamics, said from Kaohsiung, Taiwan this week.
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