Global iron ore price cut seen impacting N. America

* Benchmark ore cut pressuring Cliffs to lower prices

* Cuts come as steel prices starting to rise

By Steve James

NEW YORK, May 26 (Reuters) - U.S. iron ore pellet producer Cliffs Natural Resources (CLF.N) might have to drop prices following a settlement by mining leader Rio Tinto to cut its iron ore price by 33 percent for some Asian steelmakers, analysts said on Tuesday.

But they saw little immediate impact on steel prices which have already started to rise again after a bleak nine-month period in which demand fell away in the economic downturn.

In any case, most integrated American steelmakers have their own sources of iron ore -- a key raw material for steel -- while about half the producers make steel from scrap instead, they noted.

"Cliffs will have to lower prices," said Michael Locker, of steel industry consultant Locker Associates.

Charles Bradford, of Affiliated Research Group, said AK Steel (AKS.N) was the biggest manufacturer that relied on outside ore purchases. "AK is naked (exposed) when it comes to iron ore.

"They have a contract with Cliffs, which is more than the world price," he said following the news that No. 2 iron ore producer Rio Tinto (RIO.L) (RIO.AX) agreed to cut iron ore prices to Japanese steelmakers by a third in this year's first contract settlement, which traditionally sets the benchmark for other contracts.

Christine Dresch, a spokeswoman for Cleveland-based Cliffs, the largest North American producer of iron ore pellets, said the company had a system of "provincial pricing" in North America.

"Following today's settlement, we will continue talking with our customers," she told Reuters.

Traditionally, the first deal reached by a major ore supplier becomes the benchmark price in a decades-old system of setting iron ore prices on the basis of annual negotiations, a process now under threat from growing spot market trade.

Since 2002, the iron ore price has quadrupled as economic growth led a boom in demand for steel. But in the current economic downturn, that demand has dwindled and iron ore producers had been widely predicted to cut prices. Some analysts expect Chinese firms to balk at the new benchmark and demand even bigger price cuts.

Last month, Cliffs reported a first-quarter loss and said iron ore pellet sales volume slumped 27 percent to 2.0 million tons, and revenue per ton was down 2 percent at $76.50.

Shares of integrated U.S. steelmakers rose on Tuesday after the announcement. At mid-afternoon on the New York Stock Exchange, U.S. Steel (X.N) rose 3.7 percent to $30.58, ArcelorMittal (MT.N) was 4.7 percent higher at $30.35 and AK Steel was up 4.2 percent at $13.31.

Locker noted that most integrated U.S. steelmakers will only be affected indirectly. "Only those buying iron ore on a spot basis will be impacted, since most integrated producers have captive mines or buy on contract."