FT reported that for the past 40 years, global miners and steelmakers have maintained a tacit agreement - security of supply in exchange for annual prices at a premium above the spot market.

The unspoken deal showed its first cracks of 2008. But it has been during the 2009-10 ongoing price negotiation that it has become evident that the system, which is known as the benchmark because the first settlement between a big mill and a miner is followed by the rest of the industry, could see its days numbered.

Analysts said that Rio Tinto's deal recently with Nippon Steel for a 33% cut in prices for 2009-10 at a premium above the spot market, points to Japanese consumers desire to save, at least for one more year, the traditional way of settling prices. Japanese steel company officials declined to comment publicly but several said that they were worried that Chinese insistence on steeper cuts could destroy the customary benchmark system and lead to greater volatility in pricing.

Mining executives agree with this diagnosis, saying that Japan sees the benchmark as critical for price stability.

China, the world's largest consumer has threatened to move to spot pricing, abandoning the benchmark system, if the miners reject its desire for a 40% to 50% cut in iron ore prices, turning them back to last year's level. Until now, Vale of Brazil, Rio Tinto and BHP Billiton have offered far smaller discounts.

(Sourced from FT)