Nov. 6 (Bloomberg) -- Rio Tinto Group and BHP Billiton Ltd., the world's second- and third-largest iron ore exporters, may be forced to cut prices by 15 percent next year, ending six years of gains, because of slowing demand from steel mills in Asia.

Contract prices for benchmark Australian ore for the year starting April 1 may fall to 122.96 cents per dry metric ton unit, or about $78 a metric ton, from a record 144.66 cents, according to the median estimate of 11 analysts surveyed by Bloomberg News. Australia is the world's biggest exporter of iron ore.

``Iron ore prices are obviously going to be softer going forward,'' Paul Adams, head of research at D.J. Carmicheal & Co., said by phone from Perth. ``Compared to a year ago, the Chinese steel mills now have the upper hand in negotiations.''

The worst global financial crisis since the Great Depression has curbed demand from builders and carmakers, damped prices and prompted steel mills in Asia, Europe and the U.S. to cut output. Cia. Vale do Rio Doce, the world's biggest exporter of iron ore, had its 2009 earnings forecast reduced by almost a quarter by Goldman Sachs Group Inc.

ArcelorMittal, the world's biggest steelmaker, said yesterday it will slash production by as much as 35 percent in the U.S. and 30 percent in Europe after prices tumbled. The Luxembourg-based company forecast earnings will slide as much as 48 percent to $2.5 billion in the fourth quarter.

Toyota Motor Corp., the world's second-largest carmaker, today forecast the biggest drop in profit in at least 18 years as a global slump cripples auto demand.

Nippon, Baosteel

``There's no doubt steel production has been cut,'' John Veldhuizen, an analyst at BBY Ltd., said by phone from Sydney. ``We have probably seen peak commodity prices.''

Nippon Steel Corp., the world's second-biggest steelmaker, Baosteel Group Corp., China's biggest mill, and South Korea's Posco are among the biggest customers of the three ore producers that control about three-quarters of global supply.

Rio, battling a $85 billion hostile bid from BHP, dropped 8.7 percent to A$79.04 at the 4:10 p.m. Sydney time close on the Australian stock exchange. Melbourne-based BHP, the world's biggest mining company, declined 7.6 percent to A$29.20. Fortescue Metals Group Ltd., Australia's third-largest exporter, and Mt. Gibson Iron Ltd. both fell 11 percent.

Cash Prices

Cash prices for ore imported by China, the world's largest buyer, slumped for an 11th straight week to at least 13 percent lower than contract prices. Prices at Qingdao, China's biggest port handling the ore, fell 100 yuan to 540 yuan ($79) a metric ton in the week ended Oct. 31, the lowest since at least June 2006, according to Beijing Antaike Information Development Co.

Output in China, the world's largest steelmaking nation, declined 9.1 percent in September, the Brussels-based World Steel Association said Oct. 22. Global production will fall 5 percent in 2009, Peter Marcus, managing partner of research firm World Steel Dynamics, said from Kaohsiung, Taiwan this week.

``Clearly the steel production cuts have been quite sharp and quite significant to date,'' Alex Tonks, a Sydney-based commodities analyst at Citigroup Inc., said by phone. ``It is certainly slowing down and the market on our numbers will be oversupplied'' in 2009, he said.

To be sure, Merrill Lynch & Co., Credit Suisse Group and Macquarie Group Ltd. expected prices to remain unchanged at a record, according to the survey.

Chinese Closures

``Closures of high-cost Chinese iron ore operations are expected to prevent a much bigger fall,'' Macquarie said in a Nov. 5 report. About 20 percent of China's output is losing money and further production may be cut by the end of the year, Macquarie said. The forecasts in the Bloomberg survey ranged from 40 percent cut to no change.

Chinese steelmakers have started initial talks for 2009 contract iron ore prices with Vale, Rio Tinto and BHP, Shan Shanghua, secretary general of the China Iron & Steel Association said Oct. 23. Talks are expected to be ``very difficult'' given the slowing global economy, he said.

Vale withdrew demands for an extra 12 percent price increase this year from Chinese steelmakers, customer Baosteel Group Corp. said this week. Maanshan Iron & Steel Co. and Shougang Corp. have said they are cutting output.

To contact the reporters on this story: Jesse Riseborough in Melbourne at jriseborough@bloomberg.net; Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net.

Last Updated: November 6, 2008 05:36 EST