June 10 (Bloomberg) -- Steel mills in China, the world's biggest, are resisting efforts by Vale SA, Rio Tinto Group and BHP Billiton Ltd. to raise contract prices after steel dropped and the European debt crisis roiled markets, the China Iron & Steel Association said.

"The outlook for the European market is unclear and steel prices may keep falling," Shan Shanghua, general secretary of the association, said in an interview. "I dare say right now no Chinese steelmakers would accept the third-quarter prices asked."

Vale, BHP and Rio, the biggest iron ore exporters, may demand a 30 percent price increase for the July quarter, China Steel Corp. said last month. Falling steel prices in China may force mills to cut output and default on quarterly iron ore contracts, Baosteel Group Corp. said June 8.

"The steel market hasn't returned to the levels before the global crisis" while iron ore prices are rising, Shan said by phone from Beijing. "That's unsustainable."

Chinese steel prices have fallen 10 percent from an 18- month high on April 15, as the government imposed measures to curb speculation in the property market. Demand from makers of cars and appliances have also slowed, according to Baosteel, the nation's second-largest mill.

Vale, the biggest supplier of iron ore, won a 90 percent price increase for April quarter contracts after the three exporters dropped a 40-year custom of setting annual prices. Contract prices for the July quarter will rise from the previous three months, and Chinese customers may default to buy cheaper ore on the spot market, Jose Carlos Martins, Vale's executive director of iron ore, said June 1.

Price Demand

"The three miners have sent over their third-quarter price demand, but they aren't negotiating with the mills," Shan said. BHP spokeswoman Fiona Martin and Rio Tinto spokesman Gervase Greene both declined to comment today.

Rio shares rose 1.4 percent to A$67.3 today on the Australian stock exchange, BHP gained 0.9 percent to A$37.44.

Prices for 62 percent iron-content ore arriving at Chinese ports have dropped 22 percent to $144.70 a ton yesterday from $186.50 on April 21, according to The Steel Index.

Counter Measures

The existing method for pricing contract iron ore "is being challenged by the market just one quarter after its birth," Shan said. "Suppliers should look into the market changes and adopt counter measures. We have suggested to the suppliers to peg quarterly prices on steel prices. But they wouldn't listen to us. They are abusing their pricing power."

Vale prices its quarterly contracts on a three-month average spot price, the company said June 1.

Rio and BHP will offer Chinese steelmakers iron ore prices on a monthly basis, Metal Bulletin, an industry publication, said this week, citing unidentified officials at Jiangsu Shagang Group Co. and Wuhan Iron & Steel Group.

Shagang Chairman Shen Wenrong denied the report, saying China's fifth-largest steelmaker hasn't received any such offer.

"We haven't placed orders for imported ore for a while," Shen said in a phone interview. "Chinese steelmakers won't place orders if they would incur losses at that price."

Shan of the steel association said he hasn't heard of a monthly price offer from Rio and BHP.

'Disorderly Market'

The steel association, representing China's biggest steelmakers, has called for one unified price for all imported iron ore since 2008. Smaller mills and traders buy most of China's spot imports, which account for as much as 20 percent of total shipments, Shan said.

Having iron ore sold on contracts and on the spot market is leading to a "disorderly market," Shan said. "So long as there is a discrepancy of the spot and contract prices, under- the-table deals between the suppliers and buyers will continue to happen," Shan said.

China sentenced four Rio employees, including Australian Stern Hu, to as many as 14 years in prison on March 29 for taking bribes and infringing commercial secrets. The four executives pleaded guilty to receiving 92.18 million yuan ($14 million) between them in taking bribes from Chinese steelmakers in return for more iron ore supplies.