Nov. 7 (Bloomberg) -- Nippon Steel Corp., the world's second-biggest steelmaker, expects iron ore suppliers including BHP Billiton Ltd. and Rio Tinto Group to delay price talks as financial turmoil damps the outlook for steel demand.

The global economy is ``at the peak of chaos,'' Nippon Steel President Shoji Muneoka said today at a luncheon with reporters. Contract negotiations for the year starting April 1 traditionally begin by this month between Asian steelmakers and ore miners.

A widening credit crunch has stymied demand for cars, ships and buildings, prompting mills to cut output and spurring expectations iron ore prices will drop from a record. UBS AG forecasts a decline next year of 40 percent.

``We cannot forecast steel demand until the credit crunch and big fluctuations in stock prices and foreign exchange rates stabilize to some level,'' Muneoka said. ``We may need to cut production further.''

Japan's crude steel output will probably drop to 110 million metric tons in the year starting April 1, 2009, 8.3 percent less than the 120 million tons forecast for this fiscal year, Atsushi Yamaguchi, an analyst at UBS AG in Tokyo, wrote in a note dated Nov. 4.

Nippon Steel dropped 8.5 percent to 303 yen at 2:48 p.m. on the Tokyo Stock Exchange, compared with a 2.3 percent decline in the benchmark Nikkei 225 Stock Average. The shares are down 56 percent this year, pacing the 55 percent drop in the Topix Iron & Steel sub-index.

Crisis Deepens

``We normally start preliminary talks over prices in November, but this year we can't because the steel market's chaotic situation has just started,'' said Tooru Obata, a general manager at Nippon Steel. ``China has started cutting production and the financial crisis is deepening at the same time.''

Peter Ogden, a spokesman for BHP Billiton, the world's third-largest iron ore exporter declined to comment. Rio Tinto spokesman Gervase Greene also declined to comment on the likely timing of talks.

Nippon Steel and rivals including South Korea's Posco, Asia's third-biggest mill, and Baosteel Group Corp., China's largest, accepted increases of as much as 97 percent in contract iron ore prices this fiscal year, as they boosted output to full capacity.

Cia. Vale do Doce, the world's biggest iron-ore producer, failed to win a second round of price increases it sought from Asian steelmakers under contracts for the year started April 1. The Rio de Janeiro-based company has cut output of the raw material, Chief Executive Officer Roger Agnelli told reporters Nov. 3 in New York.

Rio Tinto, the world's second-biggest exporter of iron ore, is studying possible cuts to production of the steelmaking material in Western Australia.

``The global financial crisis is having an impact across the sector,'' Greene said by phone from Perth today.

To contact the reporters for this story: Dave McCombs in Tokyo at dmccombs@bloomberg.net; Yoshifumi Takemoto in Tokyo at ytakemoto@bloomberg.net

Last Updated: November 7, 2008 01:43 EST