Iron ore imports into one of China's main ports are set to slump by up to 50 percent over the next few months in the wake of events surrounding the Rio Tinto affair, according to a leading official.

The severe drop is the first real evidence of the impact of the inability of the China steelmakers to reach an agreement over the benchmark ore price with the major iron ore producers, led by Rio.

"Chinese steel mills have since reduced orders from global miners at annual negotiation price and turned to the rising international spot price for imports -- which now stands 7 percent higher than the price Japanese and South Korean steelmakers settled for in May," said Zang Dongsheng, vice-general manager at Rizhao Port Group.

China's iron ore imports soared 46 percent from last June, reaching 55.29 million and up 3.4 percent over May, according to statistics released by China's General Administration of Customs.

As a result, imports into Rizhao Port in Shandong province, China's largest iron ore port which accounts for a fifth of all deliveries, are set to fall by 40 percent in August and 50 percent in September compared to the average level in the first six months of this year, according to information gathered by the port from its 68 steel mills, including Baosteel Group and 30 steel trading customers.

"Chinese steel mills started to reduce orders in May when the China Iron and Steel Association rejected the 33-percent cut (offered by miners) and held out for more discount," he said. "As the shipments to China will be two or three months delayed from Australia and Brazil, so the drop will be seen in August and September."

Zang said there now also seems to be a backlash against Rio iron ore imports among China steel companies, with his customers opting to buy from Brazilian company Vale instead. Last year, more than 30 percent of the port's iron came from Australia and around 40 percent from Brazil.

"Since the Rio Tinto scandal, customers have reduced their orders from Australia and are turning to Brazil. Although it is difficult now to quantify the precise figures, they will be available in September," he said.

Zang said the wrangling over setting the price has impacted the level of imports.

"In the last 40 days, the spot price has increased by 20 percent and it has become difficult to predict how much it will increase in August and September, but it may be by 20 percent again. This has affected volume," he said.

He also said Chinese steelmakers were not buying as much because 100 million tons of ore stock had been built up at the steel mills and the port.

"This means the steel mills have three months' supply and are not in a rush to buy right now," he added.

The saga began when the China Iron and Steel Association wanted a major cut in the iron ore price, largely set by Rio, the Anglo-Australian giant BHP Billiton and the Brazilian company Vale.

A cut would have reflected the new harsher economic conditions since the price was last set a year ago.

Then the major producers managed to get away with an 85 percent increase since ore prices were soaring at the time.

This year, Japan and South Korea settled for a 33-percent cut in the spring but China hung out for more and didn't get it.

The dispute between China and Rio Tinto has now extended beyond mere price negotiation.

Earlier this month, four Rio Tinto executives were detained in China on alleged spying charges said to be linked to China steel production targets, which could have provided useful information in any negotiation. Rio and the Australian government have denied any wrongdoing.

Zang said the slump in imports would have a significant impact on the port.

"I am concerned about the situation because delivery volumes directly affect the company's revenue," he said.

The port chief added the group was taking steps to boost imports of coal and other raw material to fill the void caused by a shortage of iron ore imports.

"We have been taking steps toward this since February. Coal has always been a major business for the port and this is a logical step for us to take because of the shortfall in the iron ore business."

There may be other steps to move away from the dependence on iron ore, which could be announced shortly.

Vale said about half its shipments to China are being bought at the same price levels agreed in annual contracts with mills in other nations, Bloomberg said yesterday.

Some Chinese steelmakers are unofficially accepting the new benchmark ore prices, which are 28 percent lower than last year, said a Vale spokeswoman.

Bloomberg also reported that BHP Billiton agreed to sell 30 percent of its iron ore under new pricing mechanisms, signaling a break with the 40- year-old tradition of settling annual contracts in Asia.

The ore will be sold through a mix of cash, quarterly and indexed pricing, BHP said in a statement yesterday.