SEOUL - POSCO, the world's No. 4 steelmaker, said on Friday it was in a preliminary deal with Rio Tinto for a 20 percent discount in iron ore term prices, but is seeking for prices to go down even further.

Asian steelmakers are locked in protracted talks to settle contract prices of iron ore for the financial year started April 1 with the world's big three iron ore producers -- Vale (VALE5.SA), BHP Billiton (BHP.AX) and Rio Tinto (RIO.AX).

With Asian firms demanding cuts of between 40-50 percent to 2007/08 levels, iron ore prices are certain to fall. But a wide price gap has made it uncertain when and at what level it would be agreed.

For a factbox on iron ore prices, trade since 2000, click on [ID:nSEO328422]

Miners are demanding a 20 percent reduction but we believe it has to go down by 45-50 percent to 2007/08 levels, as steel market conditions are very poor, especially in Europe and Japan, POSCO senior executive vice president Kwon Young-tae, in charge of raw material procurement, told analysts.

We want to conclude the deal during April but miners have no reason to hurry up, because benchmark prices are usually settled above spot prices, which are currently quoted above 2007/08 contract level.

Spot iron ore prices are quoted at around $64 a tonne, sharply lower than last year's contract prices of $91 a tonne but higher than the 2007/08 level of $51.

Kwon said separate negotiations to settle coking coal prices were likely to be concluded during April with a price cut of around 60 percent, after Japan's Nippon Steel (5401.T) set the benchmark last month through a 57 percent cut on coking coal contracts with BHP Billiton Mitsubishi Alliance. [ID:nT373549]

POSCO reported earlier on Friday a sharp drop in quarterly profit to the lowest level in seven years on crumbling global steel demand, and cut its 2009 output and sales targets by nearly a fifth. [ID:nSEO4545] (Reporting by Miyoung Kim; Editing by Jacqueline Wong)

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