LONDON, May 8 (Reuters) - Rio Tinto (RIO.L) sees a benchmark iron ore settlement for this year below the current spot price as "unacceptable" as it sees market outlook improving, a spokesman said on Friday.

"Some customers have suggested a benchmark price for this year below current spot levels which is not acceptable to us, particularly against an improving market outlook over the course of the year," a Rio Tinto spokesman told Reuters in an e-mailed reply to questions.

Brazil's RIO.N, BHP Billiton and Rio Tinto control two-thirds of the 800 million tonnes of annual seaborne iron ore.

Right now, miners and steel firms are locked in annual talks to settle term prices for the year starting April 1. While steelmakers are demanding a price cut of between 40 and 60 percent, miners want a much smaller reduction.

Earlier this week, Shan Shanghua, secretary general of the China Iron and Steel Association (CISA), said the Chinese, led in the negotiations by Baosteel, should be able to get a price below the spot market, which would mean a cut of more than 30 percent.

India's spot iron ore prices remained flat this week, at around $45-$46/tonne FOB, amid low Chinese interest.

Rio Tinto said the continued development of the spot market will be a Chinese market phenomenon.

"It..will largely depend on whether the Chinese steel mills wish to adhere to long-term contracts with annual pricing or switch to a system of shorter-term purchases," it said.

"As a low-cost producer, we can live with either system, or a combination of both."

By Humeyra Pamuk
Source: Reuters