UPDATE 1-China's Angang Steel fears rising ore prices

* Iron ore prices on the spot market near 14-month highs

* Suppliers could try to raise prices by 80 pct-analysts

(Adds more detail, background)

BEIJING, March 5 (Reuters) - The president of China's fourth largest steel producer said on Friday the country was unlikely to get a decent deal for benchmark iron ore prices with foreign miners this year as negotiations heat up.

"Everybody expected the price increase to be relatively low, and that was also everyone's hope -- but now the change is likely to be relatively large," said Zhang Xiaogang, the president of China's Anshan Iron and Steel Group Corp (0347.HK), also known as Angang.

Rio Tinto (RIO.AX), BHP Billiton (BHP.AX) and Vale (VALE5.SA), which control three-quarters of the world's seaborne iron ore trade, are believed to have started negotiations with their major Chinese customers last month to decide annual contract prices. However, the pricing mechanism, known as the benchmark, has been put under increasing strain as a result of surging Chinese demand.

Zhang would not say how much he expected prices to rise this year, but analysts and fund managers told Reuters on Friday that Australia's Rio Tinto and BHP Billiton were driving steel mills to accept increases of 80 percent as an alternative to adopting index pricing for the 2010/11 shipping year. [ID:nSGE62401W]

Zhang said while the Chinese economy was expected to grow very quickly, the steel sector would still struggle to pass higher costs onto customers because of overcapacity problems, and a period of upheaval underway in the industry.

"I personally am very pessimistic about the results (of the ongoing negotiations). China's steel mills originally expected a 20 percent price increase, but they will not get that," Zhang said on the sidelines of China's annual parliamentary meeting in Beijing.

The China Iron and Steel Association (CISA), which led last year's benchmark price negotiations with overseas iron ore suppliers, said at the end of 2009 that it expected Rio Tinto, BHP Billiton and Vale to demand a 20 percent increase in contract prices for 2010.

China's second biggest steel mill, Baosteel, is leading this year's talks after CISA failed to wring a 45 to 50 percent discount out of the mining giants despite a precipitous decline in spot market prices in 2009.

Since then, prices of iron ore on the spot market .IO62-CNI=SI have risen to their highest point in 14 months, putting pressure on China's steel mills to settle a new benchmark price as early as possible, and industry insiders believe they are facing a price increase of at least 40 to 50 percent.

Negotiations are meant to wrap up around the beginning of April. Last year talks collapsed and mills were ultimately forced to accept an "interim" 33 percent price cut agreed by the big three miners with their Japanese customers. (Reporting by David Stanway, Editing by Sharon Lindores)