By Jin Jing (China Daily)
Updated: 2008-02-26 07:09

SHANGHAI: The nation's largest steelmaker Baoshan Iron & Steel Co (Baosteel) on Monday raised product prices by up to 20 percent for the second quarter on higher raw material costs and a projected increase in domestic demand.

The higher-than-expected price rise helped lift Baosteel shares by 0.28 percent to close at 17.67 yuan yesterday, despite a sharp fall on the benchmark Shanghai Composite Index.

Baoshan said in a statement on its website it would raise the price of hot-rolled steel coils by 800 yuan per ton, or 20 percent, and cold-rolled steel by 16.7 percent, or 800 yuan per ton.

The price rise beat analysts' expectations of around 12 to 17 percent. "The price hike is beyond my expectations and is likely to boost the company's profits," said Yang Baofeng, an analyst at Orient Securities.

Yang said he had raised the company's projected earnings per share from 1.05 to 1.14 yuan this year.

"Baosteel's price hike is a reaction to rising spot steel prices in the first quarter," said Gao Bo, an analyst at Mysteel.com, which tracks steel prices and information. Baosteel raised the steel production price by 10 percent in the first quarter.

But Hu Kai, an analyst at metals information provider Umetal.com, said increased domestic demand for steel to rebuild infrastructure after severe snowstorms had prompted steel manufacturers to raise their prices.

Before the Baosteel move yesterday, many other steel manufacturers raised their prices for March. Some steelmakers lifted the price three times in one week.

Analysts said the 65 percent iron ore price hike was another factor that will push up costs to $50 to $60 per ton for steelmakers that rely on imported iron ore.

After agreeing to a 65 percent price rise with Brazil's Cia Vale do Rio Doce, Baosteel will talk with another large iron ore supplier, Rio Tinto, this week.

"The steel price hike is likely to aggravate inflation because it will lead to a chain reaction of higher prices for cars, home appliances and equipment that relies heavily on steel as a raw material," Hu said.