Brazil’s mining giant Vale has started iron ore price talks with China, the company released on Friday, two days after it announced agreements with Korean and Japanese steelmakers.

The world's largest producer of iron ore said on June 10 it cut prices to steelmakers in Korea and Japan, with prices for fines decreased by 28.2% and for lumps by 44.47% relatively to the 2008 benchmark prices.

The move, driven by a downturn of global demand for iron ore, gives Vale a strong position in upcoming talks with Chinese steel mills that are seeking even larger price reductions.

According to the analyst reports from Goldman Sachs and JPMorgan on May 26, Vale is likely to cut Ore contract with China by 27%. The estimate of price cut is based on its belief Vale will receive compensation for not having as high a settlement in China as Australian miners managed last year.

JPMorgan expects China will resist the settlement as the bank noted China has been firm in demanding a reduction of between 40% and 45% this year.

However, Goldman Sachs believes China should accept that level of settlement as it is below current local spot prices.

According to JPMorgan, the 27% price cut would put Australian ore deliveries in China at $71.90 a ton, Vale at $80.30 to $86.60 and Chinese local ore at $86.

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