Many small and medium-sized steel manufacturers have raised their prices ahead of an expected price increase announcement by Baosteel, the nation's largest steelmaker.

Jiangsu Shagang Group yesterday raised the factory price of screw steel by 240 yuan per ton. Shandong Laigang Group raised the price of several steel products by 100 yuan per ton, and Baotou Steel announced it was raising hot-roll and cold-roll steel price by 400 yuan per ton from March.

The price of cold-roll steel quoted by distributors jumped sharply yesterday, ranging from 100 to 270 yuan per ton, according to statistics from Mysteel.com, which tracks steel sales.

Analysts said steel manufactures reacted quickly to the expectation of a larger price jump by two largest steelmakers, Baosteel and Shougang Group, in the second quarter.

"Many distributors are hoarding steel products and waiting for the price to rise," said Gao Bo, an analyst at Mysteel website. In doing so, "they have created a temporary supply squeeze", he said.

An industry insider said Baosteel's price adjustment has already been settled in an internal meeting yesterday morning, and the new price will fully cover the rising cost from the expected 65 percent increase in iron ore price. But he declined to elaborate.

Analysts said the added cost from a 65 percent iron ore price jump ranged from 783 yuan to 824 yuan, and that the added cost for large steelmaker such as Baosteel is lower than that for other small and medium-sized manufactures.

Zhou Tao, an analyst at Sinolink Securities Co Ltd, said Baosteel can fully cover the rising raw material cost by raising price by 400 yuan per ton, or 10 percent, in the second quarter.

Baosteel has already raised steel price by around 10 percent in the first quarter this year. The company's hot-rolled steel coil, commonly considered a market benchmark, was priced at 4,042 yuan a ton in the first quarter.

The 65 percent raw material price increase will add 500 to 550 yuan cost for Baosteel, and 600 to 650 yuan to Wuhan Steel, said Zhou.

The expected 65 percent ore price rise will translate into a rise of more than 20 percent in steel production costs, Zou Jian, chairman of Metallurgical Mines Association of China, told China Daily.

Rio Tinto group, the world's second largest iron ore producer, has said it intends to hold out for a higher price than the 65 percent rise agreed between Vale of Brazil and Japanese and South Korean steelmakers because it believes it deserves a premium on its iron ore as its mines, which are in Australia, are closer to Asia than Vale's.

Tony Loo, managing director of Rio Tinto China, earlier said the ore supplier would seek a freight premium on the iron ore it ships to Asian steelmakers.

(China Daily February 22, 2008)