UPDATE 2-Vale does not see raw material prices soaring

(Adds spot iron ore prices)

By Humeyra Pamuk

PARIS Dec 3 (Reuters) - Brazil's Vale (VALE5.SA), the world's largest iron ore miner, said on Wednesday it does not expect raw material prices to soar next year because of the global slowdown.

"We have a credit crunch, contraction in the economy, huge destockings taking place of raw materials and the demand is really dull," Fidel Blanco, managing director of iron ore sales at Vale, said at a Metal Bulletin steel conference in Paris. The Brazilian mining giant secured a hefty 65-71 percent price hike in 2008 iron ore negotiations as booming demand for steel and a scarcity of iron ore pushed prices higher.

Blanco said price negotiations would start in the "next few weeks or months", which would allow them to get a clearer picture of pricing on the basis of feedback from consumers.

But he did not expect another year of soaring prices. "We won't have a surge in raw materials."

The global slowdown would bring spot iron ore prices down, he said, adding the spot price would remain a small portion of world iron ore trading.

Spot iron ore prices have fallen more than 60 percent in the last six to eight months, from above $200 per tonne to around $80 a tonne as demand tumbled after steelmakers began to cut production.

Blanco repeated Vale's position of supporting the benchmark system in iron ore pricing, and said the company did not favour possible new pricing mechanisms.

"We are not really interested in OTC, indexes and paper markets," he said, adding that Vale had not sold to the spot market in years and has respected the benchmark system.

The system, in which iron ore miners and steelmakers set an annual price for the key steelmaking commodity, usually involves lengthy and acrimonious talks.

Iron ore giants BHP Billiton (BLT.L) and Rio Tinto (RIO.L) have expressed eagerness to move away from the traditional benchmarking system.

In September Rio Tinto told Reuters it would not agree any more traditional iron ore contracts on a benchmark basis and planned to sell more into the spot market next year.

Blanco said the benchmark system was stable and consumers of iron ore -- mainly steelmakers-- appreciated the consistency.

"We have a very strong sentiment that they are supporting the benchmark system," he said, but added if customers asked for a change Vale would respect it.

"We wait for the deposition of our clients in this regard. If change happens, we will have to review a lot of business practises," he said.

Blanco also said Vale, with its strong cash position, was well positioned to weather the financial storm. "We currently have a little less than $15 billion in cash and this will play an important role...We plan to keep investing," he said. (Editing by Sue Thomas)