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Coking coal and iron ore sold by BHP Billiton Ltd. and Rio Tinto Group, will post the first price decline in three quarters as steelmakers cut orders on weaker demand from automakers and builders in China.

Contract prices for iron ore are set to fall 11 percent to $129 a metric ton in the quarter starting Oct. 1, down from the previous three months, said Hu Kai, an analyst at researcher UC361.com., citing Platts index prices. BHP, the biggest exporter of coking coal, cut prices by 7.1 percent, Japan’s JFE Holdings Inc. and Kobe Steel Ltd. said today.

BHP and Brazil’s Vale SA, the biggest iron ore supplier, this year dropped a custom of setting annual prices for steelmaking commodities in favor of quarterly agreements as they bet on rising prices. Steel prices in China are under pressure to fall because of weaker demand, Baoshan Iron & Steel Co., the nation’s biggest publicly traded steelmaker, said this week.

“Lower prices of raw materials will be a plus for steelmakers in terms of costs,” Kazuhiro Harada, a senior analyst at Nikko Cordial Securities Inc., said in Tokyo.

Rio Tinto is the second-biggest iron ore exporter, and BHP the third. China buys the most iron ore in the world and is the largest steelmaking nation.

Gervase Greene, a spokesman for London-based Rio, and Amanda Buckley, a spokeswoman for Melbourne-based BHP, declined to comment.

Index Prices

Contract iron ore prices almost doubled in the April quarter, and gained more than 20 percent in the June-to- September period. Quarterly prices between steelmakers and iron ore producers are set based on three-month index averages on Platts, the Steel Index and Metal Bulletin. Most Chinese customers use Platts, according to Jose Carlos Martins, Vale’s executive director of iron ore.

Prices would fall by about 12 percent, according to data compiled by the Steel Index, which tracks 62 percent-ore arriving at China’s Tianjin port. Fourth-quarter iron ore prices should be set around $132 a ton for ore from Australia, Citigroup Inc. said in a report, down from $147 a ton.

The Chinese government is seeking to trim credit growth from last year’s record $1.4 trillion and is discouraging multiple-home purchases to restrain surging property prices. Economic expansion was 10.3 percent in the second quarter, lower than the 11.9 percent in the first three months.

Slowing demand led about 40 percent of steelmakers in the country to idle plants or put them on maintenance, the China Iron and Steel Association said Aug. 3, reducing their need for iron ore. Construction accounts for 70 percent of China’s steel consumption, according to UC361.com’s Hu.

Coal Decline

BHP Billiton will charge $209 a ton for coking coal for the three months starting Oct. 1, down from $225 a ton in the current quarter, Kobe Steel spokesman Hiroyuki Hashimoto said by phone. JFE’s steel unit settled at the same price, a spokesman who declined to be identified because of company policy, said.

A venture between BHP Billiton and Mitsubishi Corp. is the world’s biggest supplier of coking coal.

“Lower prices, but still good outcomes for the producers, during a seasonally weak trading period,” UBS AG analysts including Tom Price said in the report dated yesterday.

Hayato Uchida, a spokesman for Tokyo-based Nippon Steel Corp., Japan’s largest steelmaker, declined to comment.

JFE Holdings Inc.’s steel unit and other mills agreed to a 12.5 percent price increase for coking coal for the July-to- September quarter. That followed a 55 percent price gain in the April quarter.

Japan’s economic recovery is losing steam because of an “uncertain” outlook for the global economy and slack domestic demand, Standard & Poor’s said today. Rio and BHP said in August economic expansion in China may slow as the government seeks to rein in loans and stimulus spending.

Iron ore accounted for about 28 percent of Rio’s sales in 2009, the largest contributor. The material contributed to about 21 percent of BHP’s revenue for the year ended June 2010.

Delays to supply increases and a forecast gain in steel production has “pushed back” an expected supply surplus, which will support iron ore prices above $100 a ton until 2014, Citigroup said.

--Helen Yuan, Rebecca Keenan, Masumi Suga, Xiao Yu and Thomas Biesheuvel. Editors: Tan Hwee Ann, Indranil Ghosh

To contact the editor responsible for this story: Hwee Ann Tan at hatan@bloomberg.net