* Weaker steel market exacerbates steelmakers frustration

* Unless changes made steel producers will post more losses

* Miners unlikely to accept change, will hit their profits

By Silvia Antonioli

AMSTERDAM, June 26 (Reuters) - Erdemir EREGL.IS , Turkey's largest steelmaker, called on steelmakers on Tuesday to ask miners to change the iron ore pricing formula, saying it did not reflect global iron demand and was squeezing their margins.

"Iron ore demand in the spot market is not reflecting real market conditions," Erdemir iron ore procurement director Ercument Unal told Reuters on the sidelines of a Metal Bulletin iron ore conference.

"The contractual iron ore price should be linked to parameters reflecting steel final products and iron ore competing raw material: steel scrap."

Iron ore contracts are currently based on formulas linked to indices reflecting the daily iron ore spot prices IODBZ00-PLT .

The big three iron ore miners: Vale, Rio Tinto and BHP Billiton BHP.AX switched to shorter-term index-based pricing system after the 2008-09 financial crisis, when many steelmakers, especially in China, defaulted on annual contracts to take advantage of falling spot market prices.

Since the change, many steelmakers have been expressing their discontent with the current formula which they see as an imposition from the "big three", which together supply about 70 percent of the global iron ore.

Steelmakers' frustration with the current pricing mechanism has recently grown, exacerbated by weaker market conditions and by a reduction of their margins caused by a quicker fall in steel prices compared with iron ore prices.

Hot-rolled coil .HRC-TRD=SI prices in Turkey for example have fallen by almost $70 a tonne in the last two months or about 10 percent while iron ore prices have fallen by $9 per tonne or about 6 percent in the same period.

"I have talked about this problem with some iron ore suppliers but they don't want to change the pricing formula. I think this should be open for discussion because if there is no change many steelmaking companies will be announcing losses," Unal said.

"Iron ore suppliers should make sure their customers survive and for steelmakers to survive they should listen to their request and create a link with steel prices. This would be beneficial for a sustainable development for both steelmakers and miners."

Steel analysts however say iron ore miners are unlikely to accept to link their product's price to steel prices as this will lead to lower returns for them due to different fundamentals in the two markets.

A modest undersupply in the iron ore market is underpinning prices for the raw material while a significant oversupply in the steel market is depressing prices of the alloy and forcing mills around the world to cut production.

Erdemir currently buys on quarterly contracts and on the spot market and among its main suppliers are Vale VALE5.SA , Samarco, Ferrexpo FXPO.L , LKAB and Cliffs CLF.N .

(Editing by James Jukwey)

((silvia.antonioli@thomsonreuters.com)(+44)(0)(20 7542 1755)(Reuters Messaging: silvia.antonioli.reuters.com@reuters.net))

Keywords: ERDEMIR IRON ORE