BHP Billiton Ltd., the world’s largest mining company, sold 28 percent of its iron ore output at cheaper spot prices after customers deferred deliveries ahead of a forecast decline in contract prices.

All the deferred ore was sold on the spot market, reducing the share of contract sales to 72 percent in the nine months ended March 31, Melbourne-based BHP said in a statement. The spot market for the steelmaking material is trading at about 35 percent less than annual contract prices set last year.

BHP joins Cia. Vale do Rio Doce in discounting as Chinese steelmakers including Maanshan Iron & Steel Co. push for the first contract price cut in seven years and delay purchases. The global recession has curbed demand for steel and BHP today said market conditions will remain uncertain.

“Steelmakers are generally finding it tough and placing iron ore tons is going to be tougher,” said Tim Schroeders, who helps manage A$1 billion ($700 million) at Pengana Capital Ltd., including BHP shares. “People are trying to squeeze the last drop out of the lemon in a difficult environment.”

BHP fell 0.2 percent to A$31.49 at the 4:10 p.m. close in Sydney, after a 4 percent drop yesterday. The stock dropped 43 pence, or 3.2 percent, to 1,301 pence as of 9:07 a.m. on the London Stock Exchange. Iron ore output in the March quarter was little changed at 28.19 million metric tons.

Australian iron ore fines contract prices were settled at about $92 a ton last year and producers and buyers haven’t agreed on prices for the year started April 1. The spot price was $59 in the week ended April 17, according to Metal Bulletin.

Price Cuts

Vale is cutting prices by 20 percent compared with 2008 as it makes conditions on long-term contracts “flexible,” the world’s largest iron ore producer said this week. Rio Tinto Group, the second-largest producer, also offered a temporary 20 percent price cut to Asian steelmakers, according to four executives with knowledge of the deal.

Contract prices for the raw material will probably fall 40 percent this year because of lower demand for cars and building materials, Goldman Sachs JBWere Pty said March 17.

Maanshan, China’s fourth-largest listed steelmaker, is buying ore from the spot market as the company can’t reach price agreements for long-term contracts, General Manager Su Jiangang said last week.

“Customer requests for deferral of long-term contract deliveries are not surprising given that major steel companies have extended their substantial steel production cuts into the June quarter,” said Rob Craigie, a senior analyst at FW Holst Co. There may be downgrades to BHP’s earnings, he said.

Profit Risk

Citigroup Inc analyst Clarke Wilkins said today in a report his forecast of $6.3 billion annual net profit for BHP could be at “risk” because of the discounted sales. He has a “hold” rating on BHP.

BHP’s first-half profit fell 57 percent because of the cost of closing mines and plants after metal prices plunged.

The company closed its Ore Body 18 mine for four days in March because of heavy rains. It was also forced to shut part of its iron ore operations in February after a worker was killed. Rio reported a 15 percent drop in iron ore output in the same period because floods reduced deliveries.

BHP restarted its Samarco iron ore pellet venture with Vale in Brazil during the quarter, it said. BHP approved a $4.8 billion expansion of its iron ore mines in Western Australia on Nov. 25. It expects to produce 130 million tons in the year ending June 30.

Copper, Coal

“We will continue to take appropriate actions in any business that is cash negative and set to remain so, or where there is lack of demand,” BHP said today.

Output of copper declined 9 percent from a year earlier to 282,800 tons because of declining ore grades and electrical faults at its Escondida copper mill in Chile. Escondida is the world’s biggest copper mine. Nickel production was little changed at 47,500 tons.

Production of coking coal, used to make steel, increased 11 percent in the quarter to 7.6 million tons. Output may be 10 to 15 percent below current capacity in the 2009 fiscal year because of lower demand for the commodity, BHP said today.

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