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.
