UPDATE 2-ThyssenKrupp in steel price talks with customers

* CEO says will use commodities-based indices for contracts

* Talking "intensively" with clients on pricing

(Adds quotes from ThyssenKrupp CEO)

FRANKFURT, Aug 3 (Reuters) - ThyssenKrupp (TKAG.DE) said it is negotiating annual contracts with customers to automatically adjust steel prices by tying them to raw material prices, ditching the need to renegotiate them on a quarterly basis.

The comments from Chief Executive Ekkehard Schulz in German magazine Der Aktionaer mark the first time Germany's biggest steelmaker has revealed details about steel pricing negotiations with clients.

About 60 percent of ThyssenKrupp's carbon steel products are sold under annual contracts.

"We are currently talking intensively with our customers about the future form of determining the prices," Ekkehard Schulz told Der Aktionaer.

"For annual contracts we have worked out new formulas and systems so that we do not need to renegotiate the prices on a quarterly basis," he added.

The three largest iron ore miners -- Brazil's Vale (VALE5.SA) (VALE5.SA) and Australia's BHP Billiton (BHP.AX) (BHP.AX)(BLT.L) and Rio Tinto (RIO.AX) (RIO.AX)(RIO.L) switched to a quarterly pricing system with steelmakers this year.

In April, the mining companies ditched an age-old annual benchmark system for a new scheme that bases each quarter's prices on the average spot market price in the previous quarter.

"For annual contracts, we will switch to so-called commodities-based indices," Schulz told the magazine.

"Prices will then be composed of a fixed basis price, which will be steered in essence by the current market situation, (and) a surcharge for (steel) grades and (steel) quality," he added.

As part of the mining company's new pricing formula, steelmakers had to accept up to 100 percent increases in iron ore prices and price rises of up to around 55 percent for coking coal since April 1, and are forced to pass those prices on, Schulz said.

"We had to raise our steel prices for July 1 in order to partly pass on our rising costs. How the prices will develop in October will naturally depend strongly on the quotes in the very volatile commodities markets," he added.

After rising to a two-year peak near $185 a tonne in April, spot prices for iron ore, the basic raw material to make steel, fell as much as 36 percent from this high to levels in July.

Spot iron ore .IO62-CNI=SI with 62 percent iron content was last at $142.80 a tonne on Tuesday, up slightly from the previous day and nearly 20 percent higher than the trough in July.

Schulz said for contracts not based on an annual basis and readily negotiable, ThyssenKrupp was able to pass on the increases in iron ore and coking coal.

"I am very confident that we will continue doing that," he said.

He said although he does not expect a double-dip recession, "we have to prepare ourselves for a difficult year next year".

Schulz also told the magazine that demand from its customers, particularly for high quality steel products, rose "significantly" in the first half of the calendar year compared with the year-earlier period, partly due to restocking.

"Therefore, for the second half-year, we no longer expect such enormous growth for orders and production," he added.

ThyssenKrupp plans to publish fiscal third-quarter results on Aug. 13. (Reporting by Marilyn Gerlach and Tom Kaeckenhoff in Duesseldorf; Editing by Sue Thomas)