THE world's largest iron ore supplier, Cia Vale do Rio Doce, has withdrawn demands for a 12-percent price increase from Chinese steel makers, Baosteel Group Corp said yesterday.

Vale said asking for higher prices for the steel-making raw material "was bad timing when the global steel industry is in the throes of a downturn," Xu Lejiang, chairman of China's largest steel maker, said in an interview at Kaohsiung in southern Taiwan.

The global economic slowdown since June has curbed demand for steel, damped prices and turned Chinese steel mills unprofitable in October, the China Iron and Steel Association said. Rio de Janeiro-based Vale, which began pushing for an increase as early as July, said last week it was to cut output. Vale raised prices by 71 percent earlier this year and was threatening to withhold shipments of iron ore to China unless steel makers agreed to another price gain of 12 percent. Chinese steel makers said prices should fall because demand for their products had plunged.

China's steel consumption may drop this year below last year's production level of 489 million metric tons, creating a "serious imbalance in demand and supply," Xu said earlier at a conference.

"All steel mills are worried about digesting high inventories," said Luo Wei, a Shanghai-based analyst at China International Capital. "Very few steel makers are buying iron ore right now."

Baoshan Iron and Steel, the Shanghai-listed unit of Baosteel, last week said tumbling demand and prices may force it to write off inventories and incur a fourth-quarter loss.

"It's very tough for Chinese steel mills when steel prices dive but raw material costs such as iron ore and coking coal are at records," Xu said. The Chinese "steel industry will face a possible whole-industry deficit in the fourth quarter."

The slowdown may represent an opportunity for bigger steel companies to buy rivals and Baosteel's plans to reach 80 million tons of output by 2012 could be achieved by acquisitions, he said.

Baosteel was looking to "promote intensive cooperation" with Taiwan-based China Steel Corp in areas including mergers and acquisitions.

The two companies are looking at sharing acquisitions experience and technologies, China Steel Chairman Chang Chia-juch said yesterday.