Baosteel's move is a slap in the face for the government-run China Iron and Steel Association, which told steel mills not to buy from Rio Tinto, BHP Billiton and Brazil's Vale after the three largest iron ore producers said they would end the annual contract pricing system.

Chen Ying, board secretary of Baosteel's listed arm Baoshan, told an online briefing that the firm "had settled deals with certain (price) increases with miners as of April" and would pay the price difference after iron ore talks were finalised.

The public announcement of the short-term contracts underscored the collapse of 40-year-old benchmark pricing system. The trend is towards quarterly pricing based on spot price market rates. Baosteel could be paying almost double the price it paid last year, with spot prices soaring to $US185 per tonne this week, just shy of the 2008 record of US$197 per tonne.Reports say Vale has signed deals with Asian steel mills in March at prices 90 per cent above last year's contract rates.