July 10 (Bloomberg) -- Cash prices of iron ore shipped into China rose as much as 5 percent this week, and may extend gains as some suppliers cut sales and concerns rise about a possible crackdown on traders in the world’s biggest buyer.

Prices for immediate delivery of Brazilian iron ore rose as much as 35 yuan ($5) to 730 yuan a ton this week, Umetal Research Institute’s Beijing-based analyst Du Wei said in a phone interview. Ore from Australia gained 4.8 percent to 660 yuan while Indian supplies rose 4.7 percent to 670 yuan.

Vale SA, Rio Tinto Group and BHP Billiton Ltd., the three largest suppliers, are cutting cash sales to China to ensure supplies to customers in Europe, Japan and South Korea who’ve agreed contract prices, Umetal’s Du said. China this week detained the head of Rio’s iron ore operations in the country and three colleagues for allegedly stealing state secrets.

“The price gains are mainly due to reduced spot sales to China as the miners sell more contract ore to other countries,” Du said. Demand and prices for Indian ore may increase should the Chinese state investigation discourage purchase of ore from Australia and Brazil, she said.

Chinese mills are holding out for lower annual contract prices after other Asian mills settled a 33 percent price cut. Cash prices have risen 32 percent since an April low, according to Metal Bulletin data.

June Imports

China’s iron ore imports rose 3.4 percent in June to the second highest level this year, customs data showed today. Imports were 55.3 million metric tons last month, the general customs said today on its Web site.

That’s 3.4 percent higher than 53.5 million tons in May and 46 percent higher than a year ago, according to Bloomberg data. The shipment hit a record of 57 million tons in April.

Hu’s detention, along with three colleagues, may be part of a broader investigation into alleged kickbacks among traders and steel mills, according to the Australian Financial Review.

“China may buy more from India if they lower purchases from Australia,” R.K. Sharma, secretary general of the Federation of Indian Mineral Industries, said. “It’s really too early to say anything or quantify in terms of increase in purchases.”

Australia’s Port Hedland, which handles shipments from BHP and Fortescue Metals Group Ltd., shipped 12 percent less ore to China in June from a month ago, according to the port’s Web site. These sales dropped to 9.37 million metric tons from 10.59 million tons. Exports to Japan almost doubled to 2.18 million tons, the figures showed.

--Helen Yuan, Debarati Roy. Editors: Tan Hwee Ann, Keith Gosman

To contact the Bloomberg News staff on this story: Helen Yuan in Shanghai at hyuan@bloomberg.net

Last Updated: July 10, 2009 07:16 EDT