Thomson Reuters



* Iron ore prices on the spot market near 14-month highs

* Suppliers could try to raise prices by 80 pct-analysts



(Adds more detail, background)

BEIJING, March 5 (Reuters) - The president of China's fourth
largest steel producer said on Friday the country was unlikely
to get a decent deal for benchmark iron ore prices with foreign
miners this year as negotiations heat up.

"Everybody expected the price increase to be relatively low,
and that was also everyone's hope -- but now the change is
likely to be relatively large," said Zhang Xiaogang, the
president of China's Anshan Iron and Steel Group Corp ,
also known as Angang.

Rio Tinto , BHP Billiton and Vale
, which control three-quarters of the world's seaborne
iron ore trade, are believed to have started negotiations with
their major Chinese customers last month to decide annual
contract prices. However, the pricing mechanism, known as the
benchmark, has been put under increasing strain as a result of
surging Chinese demand.

Zhang would not say how much he expected prices to rise this
year, but analysts and fund managers told Reuters on Friday that
Australia's Rio Tinto and BHP Billiton were driving steel mills
to accept increases of 80 percent as an alternative to adopting
index pricing for the 2010/11 shipping year. [ID:nSGE62401W]

Zhang said while the Chinese economy was expected to grow
very quickly, the steel sector would still struggle to pass
higher costs onto customers because of overcapacity problems,
and a period of upheaval underway in the industry.

"I personally am very pessimistic about the results (of the
ongoing negotiations). China's steel mills originally expected a
20 percent price increase, but they will not get that," Zhang
said on the sidelines of China's annual parliamentary meeting in
Beijing.

The China Iron and Steel Association (CISA), which led last
year's benchmark price negotiations with overseas iron ore
suppliers, said at the end of 2009 that it expected Rio Tinto,
BHP Billiton and Vale to demand a 20 percent increase in
contract prices for 2010.

China's second biggest steel mill, Baosteel, is leading this
year's talks after CISA failed to wring a 45 to 50 percent
discount out of the mining giants despite a precipitous decline
in spot market prices in 2009.

Since then, prices of iron ore on the spot market
have risen to their highest point in 14 months,
putting pressure on China's steel mills to settle a new
benchmark price as early as possible, and industry insiders
believe they are facing a price increase of at least 40 to 50
percent.

Negotiations are meant to wrap up around the beginning of
April. Last year talks collapsed and mills were ultimately
forced to accept an "interim" 33 percent price cut agreed by the
big three miners with their Japanese customers.
(Reporting by David Stanway, Editing by Sharon Lindores)