Mainland steel shares rally on expectation mills will raise prices

Shares of mainland steel companies shot higher yesterday as investors got a better picture of the industry's possible fortunes this year while speculating that mainland mills will follow their Japanese counterparts to pass on higher raw material costs.

Japan's Nippon Steel Corp and South Korea's Posco on Monday agreed to a 65 per cent jump in iron ore prices for supplies from Brazilian mining company Vale in the industry's first deal for the year.

Mainland companies are expected to sign at the same price. The mainland is the world's biggest iron ore importer with about 24 per cent of its supplies coming from Brazil.

'There's no more uncertainty to keep the market nervous,' said Zhang Xi, an analyst at UOB Kay Hian. 'It's still not as bad as in 2005, when prices jumped 71.5 per cent.'

Shares of Baoshan Iron and Steel, the listed arm of the nation's largest steelmaker Baosteel Group Corp, rose 3.49 per cent to 18.10 yuan and Wuhan Iron and Steel gained 3.57 per cent to 22.07 yuan in Shanghai.

In Hong Kong, Angang Steel's H shares climbed 6.16 per cent to HK$18.62, Maanshan Iron and Steel rose 3.09 per cent to HK$4.66, while Chalco ended 1.57 per cent higher at HK$14.22.

The sector got a further boost when Tokyo Steel Manufacturing, Japan's biggest maker of steel girders, yesterday said it would raise product prices as much as 13 per cent next month, giving investors hope that mainland mills will follow suit.