Bloomberg quoted Merrill Lynch as saying that iron ore prices may rise less than forecast next year as steel mills reduce prices on faltering demand.

Analysts led by Ms Vicky Binns in a report said that Australian producers, including Rio Tinto Group and BHP Billiton Ltd, the second and third biggest, may win a 10% jump in contract prices down from a previous estimate of 15%. She said that Cia Vale do Rio Doce, the No 1 may get not get an increase next year assuming it wins a planned 12% raise.

Ms Binns said a slowdown in economic growth globally has pared steel demand from builders and producers of cars and appliances, forcing mills to cut prices. Global steel production may decline, reducing demand for iron ore. She said that “In recent weeks we have seen the first price cut announcements among steel mills in China and abroad, which is likely to lead to production cuts, signaling a weaker period for iron ore demand growth.”

The price of iron ore for immediate delivery in China has fallen to USD 111 per tonne down from USD 198 per tonne in February. Much of this decline comes from a drop in the cost of freight, she said. The Baltic Dry index, a measure of shipping costs for commodities has fallen 66% this year.