Chinese steel mills have rejected a cut in the price of iron ore agreed by Rio Tinto and Japan's Nippon Steel, in a bid to force producers to offer a deeper discount, an industry association said.

The country's steel companies said the deal between the Anglo-Australian mining giant and the Japanese mill cutting iron ore prices by between 33 and 44 percent did not go far enough.

"It will lead to losses in the entire Chinese steel industry. Therefore Chinese steel enterprises cannot accept this price and will not follow suit," the China Iron and Steel Association said in a statement on its website.

The government-linked association said "such a price cut does not truly reflect changes in the international iron ore market this year."

The Rio Tinto-Nippon Steel deal represents the first time since 2003 that iron ore prices have been cut due to sluggish demand, analysts said.

China's steel companies have demanded iron ore prices be slashed by more than 40 percent this year, previous local media reports have said.

The country's massive iron ore imports, which account for about 50 percent of its consumption, have been a prime driver for ore price rises in the past few years, and should give Chinese companies some leverage, analysts said.

"At least for this year, most of the major markets have seen iron ore imports decline quite significantly," Lim Su Aik, an analyst with Fitch Ratings in Beijing, told AFP.

"China's iron ore imports continued to rise. That would mean something to the miners and they will have to continue to negotiate with China," he said.

Last year, Chinese mills agreed to a near doubling of some iron ore prices with Rio Tinto and BHP Billiton.

That followed a hike of 9.5 percent in 2007, a 19 percent rise in 2006 and a 71.5 percent spike in 2005 reached with BHP Billiton, Rio Tinto, and Brazil's CVRD.

In its attempt to contain continued price rises, China has been buying overseas mining assets and seeking to source from other regions like India to diversify its supply.

In a high-profile deal, the state-owned Chinalco is offering 19.5 billion dollars to double its stake in Rio Tinto to 18 percent. The deal is still pending approval from Rio's shareholders and the Australian government.

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