Chinese steelmakers lift March prices on high cost

Tue Feb 15, 2011 6:42am GMT

* Main product prices up around 300 yuan/tonne

* Price increases in line with expectations

* Analysts show concerns of correction

(Combines price changes by Baosteel and Nippon, adds details, analysts' comments)

By Ruby Lian and Jason Subler

SHANGHAI, Feb 15 (Reuters) - Two top Chinese steelmakers will raise their main product prices for the third month in a row in March, a widely-expected move to cope with surging raw material costs and to reflect a positive outlook for demand.

Asian steelmakers have struggled with surging costs of coking coal and iron ore amid a supply squeeze over the past few months.

The devastating floods in Queensland in Australia have sent coking coal prices up by around one third while export restrictions from India have contributed to a jump of more than 10 percent in iron ore prices since the beginning of the year.

The country's top listed steelmaker, Baoshan Iron & Steel (Baosteel) , said on Tuesday it would follow Monday's move by its rival Wuhan Steel , China's No.3 producer, and lift March prices for key products.

Baosteel will raise prices for hot-rolled coil by 300 yuan ($45.48) per tonne, while prices for cold-rolled coil will go up by 260-300 yuan per tonne. Wuhan raised both by 300 yuan.

"The increases are within expectation as recovering orders from downstream sectors and higher raw materials costs have forced domestic steelmakers to raise prices," said Hu Yanping, an analyst with industry consultancy Custeel.com.

Despite the high cost of iron ore, China imported a record 69.0 million tonnes of the material in January, Chinese customs data showed on Monday. The monthly value of shipments rose for the third month in a row, skyrocketing to a record of $10.4 billion.

"We expect the problem with refractory material (cost-push and technical issues) to last for a while and prices for HRC/CRC could increase in short run," Citi Investment Research & Analysis said in a research note.

Baosteel's shares were 0.4 percent higher by 0548 GMT while the broader benchmark index gained 1.0 percent.

HEADWIND IN MARCH?

Spot iron ore prices rose to fresh record highs and were likely to extend their winning streak on Tuesday, prompting Asian steelmakers to increase product prices.

Outside of China, Japan's top steelmaker Nippon Steel Corp also raised February contract price for H-beam steel by 3-4 percent, joining the battle to pass on surging upstream raw materials costs to end users.

The most active October rebar futures on the Shanghai Futures Exchange touched a high of 5,196 yuan per tonne on Tuesday, near the record 5,230 yuan hit last Friday.

Despite sharp gains, some analysts believe the post-holiday rally in steel prices is likely to come to an end in March as traders and end users may not be able to accept aggressive price hikes as the intensifying monetary tightening measures continues to weigh on prices and demand.

Chinese inflation was lower than expected at 4.9 percent in the year to January, but price pressures continued to build and will force the central bank to stick to its course of monetary tightening.

"The most serious threat to the current steel price is the accelerating production pace of private steel mills," Henry Liu, head of Commodities/Metals & Mining of Hong Kong-based Mirae Asset, said in a research report.

"Steel mills are recklessly boosting their ex-factory prices, which further squeezes the margins of traders. The party will come to an end when traders find it difficult to finance their inventories," Liu added.

Citi also noted that marginal producers' cash profit for rebar continues shrinking as leading steel mills mainly produce high-end flat products. ($1=6.596 Yuan)
(Reporting by Ruby Lian,Jason Subler, Editing by Kazunori Takada, Himani Sarkar,sourced:reuters)

Tags:Chinese steelmakers, March 2011 contract prices, raw material, strong demand, coking coal, Baoshan Iron and Steel Co., Citi Investment, Nippon Steel Corp, Shanghai Futures Exchange, import export, steel mills