Despite China's vast wealth, the miners hold the upper hand because the non-contract, or spot, market remains high, meaning they can afford to abandon the decades-old annual benchmark system.

Analysts warn the negotiations will be tough again this year after China's steelmakers failed to reach an agreement with Rio Tinto, BHP Billiton and Vale for the first time in decades in 2009.

"The contract outcome is going to be a particularly tough one this year because they (the miners) are not going to be as accommodating," said Mark Pervan, head of commodities research at ANZ.

"It's less conciliatory, these guys are going to play hardball. They are prepared to forgo some customers who don't want accept that because they will say, 'Fine, go to the spot market because that's where we want you anyway'."

Last year's collapse was followed just days later by the arrest of four Rio Tinto employees in Shanghai, prompting consternation in the business community. The four, including Australian passport holder Stern Hu, are facing industrial espionage and bribery charges.

China's iron ore imports surged 41.6 percent to 627.8 million tonnes in 2009 on soaring demand from steel mills.

China was seeking a discount from prices negotiated separately with Japan and South Korea owing to its vast imports, but ended up paying much more on the spot market.

This year China has reverted to having steel giant Baosteel head the talks after individual mills bypassed lead negotiator the China Iron and Steel Association (CISA) to pay spot prices.

Pervan described the current negotiations, which take place behind closed doors, as "a turning point" as the miners look for a new method of setting prices.

"The old system is breaking down," he said, adding that the miners' success in selling on the spot market will likely drive up benchmark prices.

"The Chinese have changed the ballgame with such a rampant increase in demand and the fact that a lot of steel capacity in China is run on a lower margin and they are prepared to buy on the spot market at a premium."

BHP chief executive Marius Kloppers indicated as much Sunday when he said the spot market -- currently about 100 percent above the benchmark rate -- was a key sign of where the contract price should be.

Tim Schroeders, fund manager at Pengana Capital in Melbourne, said iron ore prices were in a transition stage where the market was demanding more flexibility in pricing.

"Setting a price for a year is a little bit archaic and adopting a more flexible pricing structure better serves the industry over all," he said.

Schroeders said he would be surprised if a contract price was not negotiated this year but admitted the talks would not be smooth.

"The Chinese being so large, now clearly the biggest steel makers in the world, they would argue that... we're the biggest and we should be able to negotiate our own price," he said.

"The dynamics are fairly volatile but it's still in the industry's best interests to have a benchmark price of sorts rather than be totally subject to what is a very volatile spot market."

James Wilson, research analyst at DJ Carmichael in Perth, said the days of the benchmark contract system appeared to be numbered.

"I actually don't think there will be a benchmark this year," he told AFP.

"There's lots of people now, and major producers now saying the system is a little bit outdated. And it is -- every 12 months they get together and they argue for four months."

"Why on earth would BHP and Rio go and negotiate benchmarks now when they've held out for 18 months?"

Annual iron ore pricing negotiations traditionally begin with Japan around November and take place alongside similar discussions with China.

BHP last week said half-year profits doubled to 6.14 billion US dollars, while Rio predicted decades of Asian-led growth as it announced annual earnings were up 33 percent to 4.87 billion US dollars.

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