REFILE-China iron ore talks deadline may not see deal

(Clarifies shipping basis for spot and term price comparison in seventh paragraph)

SEOUL, June 30 (Reuters) - Chinese steel mills and global miners have until the end of the day to agree annual iron ore term prices, a deadline that may prove flexible as the two sides struggle to reach a deal.

Last year, talks dragged on until June 24, but this year the two sides are so far apart that a deal may not be possible, bringing an end to the decades-old annual benchmark pricing system for the steel-making raw material.

Rio Tinto (RIO.AX) (RIO.L), which effectively set the end-June deadline, has maintained it is ready to sell to its customers on whatever basis they prefer, but has shown no inclination to go lower than a 33 percent price cut it agreed with Japanese and South Korean customers.

The negotiating power of China, which wants a 40-45 percent price cut, has been sharply undermined by a recovery in both steel and iron ore prices.

"I won't be surprised if the standoff continues as price action over the past month does not suggest we will see much change to current market dynamics," said Su Aik Lim of Fitch Ratings in Beijing.

A failure to strike a deal would mean China having to buy most of its ore on the volatile spot market, but in reality the shift is already underway -- Rio has sold half its ore on a spot basis this year.

Spot iron ore prices to China have risen by a fifth in just a month, and now trade at a 4-month high above $80 a tonne on a delivered China basis, equivalent to around $65 free on board. That's higher than the contract price of $61 that the Japanese and South Korean mills secured, encouraging miners to take a harder line with Chinese steel mills.

Rio said on Monday it was still in talks with China, which has rejected the 33 percent price cut agreed between Rio and Nippon Steel (5401.T), JFE (5411.T) and POSCO (005490.KS). [ID:nSYD517492]

"They can't possibly come out with an agreement (by Tuesday), but they will keep talking until they do ... There really is no deadline anymore," said Zhang Chang An from World Steel Dynamics.

For a Reuters poll on likely outcomes, click [ID:nSP482567]

For a PREVIEW of the talks [ID:nSEO56621] (Reporting by Miyoung Kim; Additional reporting by David Stanway in BEIJING; Editing by Michael Urquhart)