Reuters reported that BHP Billiton has been approaching Chinese steel mills with an offer of iron ore supplies based on index linked prices rather than the traditional benchmark.

A source close to BHP and an executive in a state owned Chinese trading company said that several small mills had agreed to terms but no big firms had yet signed up.

Mr Shan Wenrong chairman of Jiangsu Shagang Corporation the only privately owned firm that ranks in China's top five steel mills, denied his company had been in talks with BHP Billiton on the issue and said that Chinese mills still wanted to get a 40% to 50% cut in the benchmark price, a deeper cut than BHP's rival Rio Tinto has agreed to with Japanese mills.

Mr Shan said that "We say 40% because our basis is 40% but the deal could be 38%, 39%, 41%, 42% cut, depending on the negotiation. Nobody can say 40 % is an absolute figure." He said that "The price cut should meet the interests of both the Chinese steel mills and the miners."

(Sourced from Reuters)