If no agreement is reached, from Wednesday, July 1 some iron ore contracts may be dissolved, leaving spot prices as a likely option to determine future prices.
If negotiations extend beyond June 30, the introduction of a spot price system could play into the hands of Australian miner BHP Billiton, which previously indicated that it would prefer using the spot price or an index price rather than setting annual benchmarks.
Another Australian miner Rio Tinto, which prefers to maintain a benchmark price to ensure confidence as regards supply and price, has said that it is still in talks with the Chinese steel mills over iron ore prices on the eve of the July 1 deadline.
The iron ore miners and their Chinese customers have until Tuesday to reach a deal on contract prices for the current fiscal year, but the two sides appear too far apart at this late hour to strike a deal in time, according to analysts.
If the miners and Chinese mills reach a deal by Tuesday, the contract price would be backdated to April 1 and run until March 31, 2010.
The Australians want the Chinese mills to agree to a 33 percent price cut over last year, in line with benchmarks already set with Japanese steelmakers and South Korean POSCO or to buy ore on the spot market.
However, the China Iron and Steel Association (CISA) outlined three principles last week to which China will stick in the international iron ore price talks, as SteelOrbis reported. According to these principles, China will not accept a 33 percent reduction in iron ore contract prices or the spot ore tender activities currently performed by Rio Tinto and BHP Billiton; Chinese mills are not allowed to participate in spot ore bidding; and the mills involved in spot ore bidding will be investigated and punished.