Australian miner giant BHP Billiton has unveiled a shift in the way it prices sales of iron ore, indicating the end of 40 years of annual contracts.

BHP said on Wednesday that just 23p%of total iron volumes will be sold at these benchmark prices in the next 12 months, while 30% will be sold through new pricing mechanisms, a mix of quarterly negotiated pricing, market clearing price (spot market) and index-based pricing.

Historically, prices for iron ore have been settled through annual rounds of price contracts, but BHP has been seeking to move away from this archaic system for a number of years.

The world's third largest iron ore miner has been pushing for index pricing, which didn't get support from the other two leading miners. The Chinese steel makers have been strongly against this.

This time, however, BHP has been more flexible as it seeks the mixed pricing mechanism. This will also bring the annual pricing talks to collapse, according to analyst in China.

Of the sales still being carried out under the old benchmark system, BHP said that it had agreed to a 33% reduction in prices for iron ore fines and a 44% reduction for iron ore lump.

These figures are similar with those of Rio Tinto which has previously indicated cuts of this magnitude with Japanese and Korean steel mills.

Negotiations for the remaining 47% of iron ore volumes are ongoing, BHP said in the statement.

Marius Kloppers, chief executive of BHP, said during an interview with Caijing that the traditional negotiation mechanism has been broken down.

Some clients, especially the smaller ones, prefer floating prices, while big steelmakers prefer stable long-term contract price, said Kloppers. There will a mixture of the two, and we're pleased to have both.

We've said many times that a benchmark contract with the Chinese feels more like a call option for the customer, Brendan Harris, an analyst at Macquarie Bank in Australia, was cited in Telegraph as saying.

As such, we're pleased to see progress towards a more dynamic pricing system, Harris said.

In its statement, BHP did not reveal which customers had agreed to any particular pricing mechanism. It did, however, say that it believed current settlements are indicative of continued progress towards transparent market pricing.

There was still no news on negotiations with Chinese steel groups, as they continue to hold out for a better deal than the one currently on offer.

According to the statistics from Umetal, China accounts for half of BHP's annual iron ore sales in 2008.

China Iron & Steel Association (CISA) and Ministry of Industry and Information Technology both stated that the pricing talks are still going on between Chinese mills and the world's major ore producers BHP, Rio Tinto and Vale, local media reported.

However, the spot price of iron ore has been going up two months after Rio reached an agreement of initial price with Japan.

The CIF of iron ore imported from India to China has soared by Wednesday to $100, 35% up compared to the contract price.