Mainland manufacturers are bracing for a shockwave of supply price rises after Chinese steel producers accepted an unprecedented 71.5 per cent rise in prices of imported iron ore this week. Price rises are already filtering through the supply chain in various industries, frustrating Beijing's efforts to rein in inflation and rekindling fears of an economic hard landing. 'China learnt a bitter lesson this week that size does not often matter,' wrote UOB Kay Hian associate director Foo Choy Peng in a research note. 'Although it accounts for at least 30 per cent of the world's iron ore imports, it has been unable to use that leverage to negotiate for a smaller rise in the price of imported ore.' On Monday, China's largest steelmaker, Shanghai Baosteel Group, agreed on behalf of 13 steel firms to the price increase - far higher than the 30 per cent to 50 per cent rise expected by importers - proposed by the world's largest iron ore producer, Brazil's Companhia Vale do Rio Doce. Steel producers in Japan, South Korea and Taiwan accepted a similar price rise from the Brazilian miner last week. Steel prices should rise about 10 per cent this year after steel firms increased prices by an average of 30 per cent last year, said JP Morgan commodities analyst Zhang Feng. According to a BOC International research report, prices of ordinary steel plates last year surged 27 per cent from 2003 to an average of 4,736 yuan per tonne. They traded at 4,790 yuan in early January. Mr Zhang expects steel producers to be able to pass the bulk of the increases in iron ore, coking coal and transportation costs on to their industrial customers. 'Steel prices probably will peak in the second half before easing off,' he said. The degree of impact on each steel-using sector will depend on its bargaining power over its customers and the proportion of steel in its raw materials costs. China's thriving shipbuilding and container-making sectors, key consumers of steel, enjoy buoyant global demand and have amassed more than enough pricing power to pass costs on to customers. But durable goods manufacturers will find it far more difficult to pass the price rises on to end-users in a market awash in new supply, thanks to the fixed-asset investment frenzy in manufacturing over the past few years. 'If steel prices continue to go up, it will certainly increase our cost pressure,' said a senior official at Dongfang Electrical Machinery, maker of power generation equipment. 'We will strive to control costs but this may not be enough.' Steel accounts for over half of the company's raw material costs. The Chinese white goods industry, a huge consumer of steel, is seen as particularly vulnerable, given the overcrowded sector's proclivity for price wars. 'Appliance prices have fallen to levels that cannot be pushed down further without resulting in widespread losses,' said Alex Fan, Daiwa Securities head of China research. Beijing's economic cooling measures over the past year have focused on avoiding a hard landing by limiting the supply of bank credit to curb fixed-asset investment. The policies had reduced year-on-year growth in fixed-asset investment to 25.8 per cent in December from nearly 50 per cent at the beginning of last year. Morgan Stanley economist Andy Xie Guozhong forecasts that this year's consumer price index will rise 3.5 per cent to 4 per cent this year, compared with a seven-year high of 3.9 per cent last year. But the forecast numbers are skewed by slowing growth in food prices. They mask enormous projected price rises in core industrial commodities. The spectre of an accelerated shakeout in China's numerous low-margin heavy industry sectors, which employ millions of workers, is rising. Steel, electricity, water and transport costs were each expected to rise at least 10 per cent this year, showing that 'market forces have overwhelmed' the efforts of China's top industry policy body, the National Development and Reform Commission, to control inflation, Mr Xie said.