The semi-official China News Service quickly withdrew a report on Tuesday that said China had suspended iron ore negotiations with Australian miners, offering no further insight on the status of fraught price talks.

The report, which the agency later said was based on a false research report, sowed still more confusion and uncertainty in an industry that has been in flux for months, as price talks drag long past their deadline and become entangled in a political row over Rio Tinto employees detained on suspicion of spying.

Some industry sources said a suspension in talks appeared possible, with the China Iron and Steel Association refusing to accept the 33 percent price cut benchmark set in May, while miners have no incentive to rush the process now that spot market prices have soared far above their original deal.

Only Vale is talking to China at the moment but it won't be easy for China to win a bigger price cut from Vale either in the rising market as it would make Japanese and South Korean mills baulk, said a industry source who is familiar with but not directly involved in the negotiations with the Chinese.

Earlier in the day, the China News Service said speculative behavior distorted the spot iron ore market seriously, forcing CISA to suspend negotiations with Australia's Rio Tinto and BHP Billiton .

But within half an hour it had removed the story from its website, and an official said it had made a mistake in quoting the research report -- which had cited a CISA statement -- without verifying it. It did not say who had issued the research.

At a meeting in Beijing last week, CISA officials said they were still in talks with miners to achieve a reasonable result after failing to reach deal before the June 30 deadline. CISA has rejected the 33 percent price cut agreed by other Asian mills.

CISA was not immediately available to comment and both Rio Tinto and BHP declined to respond. Many key players in the iron ore saga have maintained a stricter than usual silence lately as Beijing's investigation into the steel industry and its use of the state secrets law against Rio Tinto employees stokes anxiety.


The possible end-game for negotiations appears increasingly unclear, with CISA trying to maintain a united front even as some of its members break away to secure sideline deals to avoid paying spot iron ore prices that have surged above $100 a tonne -- some 35 percent above the benchmark price to Japan and Korea.

And China's reluctance to commit is causing at least some mills outside China to pause before signing off on initial deals.

It's anybody's guess when the talks will be concluded, said one industry source with a steel mill outside of China who declined to be named. It may take quite a long time for this year's talks to be completely wrapped up, because everybody is watching China and taking an wait-and-see attitude.

Under pressure from local steel mills to accept the 33 percent cut as spot prices surge, CISA officials have repeatedly said the hike does not reflect real demand and has been caused instead by local speculation.

They have urged the government to step in and revoke import licenses and impose a single price on the industry based on the negotiated benchmark.

Shan Shanghua, the association's secretary general, told state television on Monday that accepting the current spot market price would be the equivalent of suicide for the Chinese steel industry.

China, which has sought a bigger price cut of 40-45 percent, has seen its efforts undermined by rising spot prices and record imports led by small and medium-sized mills.

Analysts say the situation is not likely to be resolved soon.

I see the period of uncertainty continuing for another couple of months, said Ben Westmore, commodities analyst at the National Bank of Australia.

There have been strong imports of iron ore but we could see demand from Chinese mills slowing over the next couple of months. That's when spot prices could moderate a bit.

But with no way to break the impasse, it remains in doubt whether a traditional benchmark settlement can actually be reached.

The fact that the market has effectively been running for almost a year with only a token benchmark presence suggests that it may not be critical to have it back, said Cameron Hunt, iron ore index director at Metal Bulletin in London.

(Reporting by David Stanway, Miyoung Kim and Sambit Mohanty; Additional reporting by Mark Bendeich; Editing by Jonathan Leff)