June 25 (Bloomberg) -- Chinese steelmakers, the world's largest consumers of iron ore, will resist any attempt by BHP Billiton Ltd. to win a larger price than agreed to with Rio Tinto Group, an official familiar with the talks said.

Any move by BHP, the third-largest exporter of the ore, to link contract prices to higher spot prices will be rejected, said the official who declined to be identified because the talks are private. An agreement may be reached next week with Melbourne-based BHP, the person said.

Baosteel Group Corp. , China's largest steelmaker, on June 23 agreed to pay Rio Tinto as much as 97 percent more for annual contract iron ore as demand outpaced global supply. BHP yesterday said the settlement means it's still cheaper for Asian steelmakers to buy Australian ore than Brazilian ore.

``BHP will probably compromise with Baosteel and accept the Rio accord because both sides should aim at long-term interests,'' Helen Lau, a Shanghai-based analyst at Daiwa Securities Group Co., said today.

Iron ore prices have surged for six years, raising costs for steelmakers. Baosteel, South Korea's Posco and some rivals have taken advantage of rising demand to pass on the costs by lifting steel prices. Nippon Steel Corp., which hasn't increased prices enough to cover costs, said in April that full-year profit will fall 41 percent.

Exceeds Vale Prices

London-based Rio's accord with Baosteel already exceeds the 71 percent gain steelmakers gave Brazil's Cia. Vale do Rio Doce, the world's largest supplier of iron ore. Chinese steelmakers still incur a higher cost for buying from Vale because it costs about $45 a metric ton more to ship ore from Tubarao in Brazil to China, than from Western Australia, based on average freight prices of the past 12 months.

Rio, the second-largest supplier of the material, said Asian steelmakers should pay more for their Australian ore because of the lower shipping costs.

The Rio accord equates to a freight component of $7.50 a ton which doesn't cover the $40 to $50 a ton difference between the cost of Brazilian and Australian ore in China, BHP said yesterday.

BHP will seek ``greater transparency'' in iron ore pricing and plans to sign more contracts linked to spot prices or a pricing index, Chief Executive Officer Marius Kloppers said yesterday at a presentation in London.

Emma Meade, a Melbourne-based spokeswoman for BHP, declined to comment today.

South Korea's Posco, Asia's third-largest steelmaker, yesterday said it will probably accept the Rio accord as a benchmark price.

To contact the reporter for this story: Helen Yuan in Shanghai at hyuan@bloomberg.net

Last Updated: June 25, 2008 00:58 EDT