Rio Tinto Group

Baosteel boosts prices to pass on increased iron ore costs

PUBLISHED : Wednesday, 24 May, 2006, 12:00am
UPDATED : Wednesday, 24 May, 2006, 12:00am

Top producer cites cheap domestic steel as mills remain in deadlock with miners

Baoshan Iron and Steel (Baosteel) will raise its third-quarter key product prices by 6 per cent to 13 per cent to help offset the impact of a widely expected increase in iron ore prices.

China's largest steel producer said yesterday it had raised the average ex-factory price of hot-rolled products by 8.23 per cent to 3,942 yuan a tonne, cold-rolled products by 6.67 per cent to 4,796 yuan and hot-rolled electroplated products by 13.25 per cent to 5,127 yuan.

'The second-quarter prices of Baosteel's products are clearly lower than equal quality products in Europe and the United States,' the company said. 'Pushed by integration of the global steel market, the momentum is there for Chinese domestic market prices to go up.'

Citing consultancy CRU's figures, Baosteel said the second-quarter mainland average hot-rolled product price was 18.62 per cent lower than that in the US and 15.58 per cent less than that in Germany.

The announcement comes as mainland steel companies, led by Baosteel, are still locked in negotiations with Brazil's Companhia Vale do Rio Doce (CVRD) as well as Australia's BHP Billiton and Rio Tinto on contract prices for this financial year to March. The three mining giants control 80 per cent of the world's seaborne iron ore trade.

CVRD last week signed deals with Italy's Ilva, South Korea's Posco, Japanese steel mills, Germany's ThyssenKrupp and the world's largest steelmaker, Mittal, while Rio Tinto had signed contracts with Posco and Japanese steel mills.

All of the other steel producers have agreed to a 19 per cent increase in the price of fine ore, which accounted for 71 per cent of China's ore imports last year.

The agreement heaped pressure on China, which had 43 per cent of global iron ore trading volume, to agree to the same price rise.

A China Iron and Steel Association spokesman last week said mainland steel mills would not accept the increase, citing much lower steel prices in China than overseas.

UOB Kay Hian analyst Foo Choy Peng said that larger industry players such as Baosteel, Angang New Steel and Wuhan Iron and Steel had greater pricing power to protect their profit margins.

Smaller ones, especially those relying more on lower-value-added construction steel - such as Maanshan Iron and Steel and Chongqing Iron and Steel - would find it harder to pass higher iron ore costs to customers, Ms Foo said.