SYDNEY, Dec 19 (Reuters) - Australian iron ore miner Fortescue Metals Group on Monday said a potential tie-up with larger Brazilian rival Vale to customise orders for Chinese steelmakers was unlikely to proceed.
"Negotiations are continuing between the parties on an amicable and commercial basis, however, it is looking less likely that any transaction will be completed," Fortescue said.
Vale, the world's No. 1 iron ore miner, and Fortescue, the world's No. 4, said in March they were in talks to blend up to 100 million tonnes of their ore in China.
The aim was to win a bigger share of the market by matching the quality of the ore produced by Australia's Rio Tinto , which is seen as the benchmark in China.
Vale would also buy between 5 and 15 percent of Fortescue's shares on market under the proposed tie-up, and would be able take stakes in Fortescue's existing or future mines.
A source familiar with the discussions said the venture, agreed during a period of low ore prices, had become less attractive as prices started to rise.
"Iron ore was very low when the two started talking," the source said. "But it's much less imperative now now."
Iron ore has enjoyed a remarkable 2016, bouncing around 85 percent from where it started the year and more than doubling from February's low point of around $38 a tonne.
The likelihood of the deal with Vale unraveling comes as Fortescue takes delivery on Monday of the first of eight custom-built iron ore carriers aimed at giving it greater control over the timing of shipments to China.
The ships will eventually carry about 12 percent of the 165 million tonnes of iron ore that Fortescue ships annually.
Three more freighters are under construction at China's Yangzijiang Shipyard and a further four are being built at the Guangzhou Shipyard International.
Reporting by James Regan; Editing by Richard Pullin