China's Baosteel will raise prices of its major steel products by 9 to 13 percent next month, more than expected, the biggest one-off increase since Baosteel moved from quarterly to monthly prices last May.

Baoshan Iron and Steel Co Ltd, the listed unit of China's largest steel mill, will increase hot and cold-rolled steel products by 9 to 13 percent compared to July, Reuters reported yesterday, citing trade sources.

The move, some analysts said, may suggest the steel mills have effectively given up their battle for lower iron ore prices.

"I think it could mean that Baosteel has agreed to follow the price cut that Rio Tinto and Japanese steel mills signed," said Cui Jingyi, analyst, Guotai & Junan Securities.

Rio in May agreed to a 33-percent cut in its annual selling price to most of its major Asian customers outside China, but China's mills have been arguing for a return to 2007 prices, implying a cut of at least 40 percent on purchases from Rio, BHP Billiton and Vale.

But earlier this month a Shanghai-based newspaper, citing unnamed "informed sources", said the China Iron and Steel Association had agreed to the 33-percent price cut. Steel executives and Rio denied a deal, but most analysts still say that the price is all but inevitable.

Some analysts criticized Baosteel's move as "inappropriate" as it may give the foreign iron ore suppliers leverage in their long-term price talks with Chinese steel mills.

Baosteel's August price rises will be the third monthly increase in a row, taking prices to their highest since November, when the scale of the collapse in global demand was becoming clear.

It raised the price of straight-carbon hot-rolled steel coil by 350 yuan per ton, while increasing the price of low-carbon hot-rolled steel coil by 500 yuan a ton.

The company also raised the price of cold-rolled steel coil by 500 yuan a ton, trade sources said, adding that they were surprised by the price hikes.

Some analysts said Baosteel's sharp price hikes were supported by a recovery in demand and exports, but others said prices were driven up by speculation, doubting the impact of real demand.

China's crude steel output reached 45.39 million tons in June, data from the China Iron and Steel Association showed, equivalent to annual production of 552.2 million tons, more than 10 percent above 2008 output of 500 million tons.

The production boost reflected improved earnings among Chinese steel mills, which said they started to be profitable in May after seven straight months in the red.

(China Daily July 14, 2009)