China denies mulling iron ore premium for BHP and Rio

By Alfred Cang and James Regan

SHANGHAI/SYDNEY (Reuters) - Chinese steel industry officials said on Monday that China's mills are not considering paying a freight premium demanded by Australian iron ore miners (BHP.AX) and Rio Tinto (RIO.AX), denying a media report.

The demand has become a sticking point in tense negotiations over annual term-contracted iron ore supplies, which the Chinese officials said should continue to be based on free on board (FOB) prices that exclude freight rates.

The Australian newspaper said on Monday that Zou Jian, chairman of the China Metallurgical Mining Association, told an industry gathering in Shanghai that steel firms were considering including freight rates in their annual iron ore supply contracts.

But Zou told Reuters on Monday that the report misquoted him and that high freight rates were an unusual factor this year that did not warrant altering the long-term pricing system.

"If you look at it from the Australian side, it would be understandable to ask that freight fees be added to iron ore prices," Zou said.

Freight rates from Australia to China are $11 (5.5 pounds) per tonne, clearly lower than fees from Brazil to China of $25 to $30 a tonne, he added.

"We don't want to abandon the long-term system just because of the freight rates, because the rates are volatile and will change in the future," he said.

Rio and BHP declined to comment.