Rio Tinto, the world's second-largest iron ore miner, has softened its stance regarding iron ore prices to Chinese steel mills, with negotiations just around the corner and both sides trying to test how far the other would bend in the crucial talks.

Tom Albanese, Rio's chief executive, said in London on Friday that he would seek to mend relations with China: "I made a personal commitment to ensure that our relationship with China is restored to a sound footing, and I was most recently in the country a few days ago."

Sam Walsh, chief executive of Rio's iron ore unit, also said it was possible that China may use a new iron ore pricing mechanism in the 2010 contract year.

"Any number of scenarios could relate to an outcome in 2010 with one scenario being a different pricing mechanism in China to the rest of the world," he said.

But he also warned any efforts by Chinese mills to seek an unfair benchmark price would make negotiations tough.

"Certainly, if there is any tinge of unfairness in relation to what is being structured, it would make benchmark negotiations very difficult," he said.

China's steel industry insiders, however, said they are under no "illusion" as to the outcome of next year's negotiations, due to the unbridled growth in steel output and the industry's perennial reliance on overseas suppliers.

"Although many steelmakers have seen poor profits, they are not taking any initiative to curb production," said Ye Xiaofeng, general manager of Jiangxi-based Nanchang Changli Iron & Steel Co's raw materials division.

 "The price of domestic iron ore has limited room to fall further, and given the fact that European and Asian steel markets are reviving, next year's benchmark price may remain high."

"I think Sam Walsh is talking of a mechanism that is close to the price index as he had reiterated that Chinese steel mills could not seek an unfair price against Japan or South Korea," said a source from a State-owned steel mill who declined to be named.

Xu Donghai, vice-general manager of iron ore trading company Worldlink Resources Limited, said since the next round of negotiations hadn't started yet, Rio's gesture was more likely to get a feel of the Chinese steel mills' stance.

Rio needs to hear from Baosteel Group, and CISA as to exactly what their view is in relation to prices, Walsh said.

The Chinese Iron and Steel Association (CISA) could not be reached for comment.

(China Daily November 3, 2009)