Brazilian mining giant Companhia Vale do Rio Doce (RIO), or Vale, is aggressively offering "undercover" discounts to Chinese iron ore spot market buyers through cheaper freight charges, a former Vale executive told Dow Jones Newswires on Thursday.

The former executive, who wished to remain anonymous, confirmed a Citigroup note Wednesday that stated Vale was "aggressively" selling the commodity at spot market prices to China.

Contacted by Dow Jones Newswires, a spokeswoman for Vale declined to comment on the company's sales strategy.

The former Vale executive said the discounting was putting Chinese iron ore miners in a difficult situation as they cannot match the price or the quality of Brazilian imports.

Vale has been selling iron ore fines from its Carajas mine at $70-$75 a metric ton in recent weeks, signing new long-term contracts with small and medium-sized mills, according to Citigroup.

Iron ore spot prices in China have come down in recent weeks to $64 per ton due to Vale's aggressive entry into the market.

According to the former Vale executive, Chinese steel mills were opportunistically buying the cheaper iron ore on offer but the steel industry has not completely recovered yet, and so stocks are growing.

Chinese port stocks have risen 10 million tons to around 68 million tons, with March iron ore imports reaching a record high of 52.1 million tons, up 46% on the year.

"On the negative side, greater inventories may mean lower iron ore demand later in the year, and a continuing fall in prices, but in compensation Vale may gain greater market share," said the former executive.

A New York-based mining sector analyst, who also wished to remain anonymous, said, "The fact Vale has been practicing large spot market discounts is old news and nothing new to those in the loop. What's most interesting to investors at the moment is the likelihood of a price settlement between miners and Japanese mills."

Japan's Sankei Shimbun reported Thursday that BHP Billiton Ltd. (BHP) and other iron ore miners were about to sign a supply agreement with major local steelmakers at a 30% discount on 2008 prices.

A Vale spokesman told Dow Jones Newswires on Thursday the company would not comment on how it was selling its iron ore or on negotiations with steel mills.

-By John Kolodziejski, Dow Jones Newswires; 55-21-2586-6086; John.Kolodziejski@dowjones.com