Brazil's Samarco Mineracao S.A. has set an iron ore direct-reduction pellet reference price with Indonesia's Krakatau Steel, Samarco said in a statement Monday.

Samarco is jointly owned by Brazilian mining giant Vale S.A. (VALE) and its global competitor, Australia's BHP Billiton (BHP).

The new price at $1.2523 dmtu, or approximately $84 per metric ton, is 48.3% lower than the 2008 price, Samarco said.

Dmtu is a dry metric ton unit.

The agreement follows the recent price set for blast furnace iron ore pellets announced with a group of Japanese steelmakers worth $1.1043/dmtu, the statement said.

Samarco will supply 900,000 tons of direct-reduction pellets to Krakatau, the company said.

Half of Samarco's pellet production is used in direct reduction and half for blast furnaces, Samarco said.

In late May, Samarco said it would continue operating its iron ore pellet plant below capacity for at least another four months.

Two of Samarco's three units, each with seven million metric tons a year capacity, were mothballed at the end of November owing to falling demand.

Samarco's production capacity is 21.6 million tons a year, but the company expects to produce only 14 million tons in 2009.

All Samarco's output is exported.

The plants are located at Porto Ubu in Espirito Santo state in southeastern Brazil.

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