'The point for them is they have to return to profitability before considering the negotiations,'said Judy Zhu, a Standard Chartered economist in Shanghai. 'They're now trying to consume iron ore inventories. I think (the price increase) is a natural response.'
BEIJING (Dow Jones)--China's major steel mills are raising steel prices by up to CNY350 a metric ton from the next two months, in an apparent race to return to profitability even at the cost of weakening their position at iron ore price negotiations with miners.
Official media reports and industry participants said this week at least five major mills, including industry leader by output, Baoshan Iron & Steel Group (600019.SH), will raise prices.
The reports said the steel market is likely to rebound on China's CNY4 trillion stimulus package, a large proportion of which is expected to be invested in infrastructure projects.
But the price hikes, Baoshan's first since August, also weaken the mills' bargaining position in iron ore price negotiations with Australian and Brazilian miners, that had allowed steelmakers to argue for aggressive cuts in ore prices because of bearish demand for steel.
But for the mills, the urgency of financial survival could trump the needs of these negotiations.
"The point for them is they have to return to profitability before considering the negotiations," said Judy Zhu, a Standard Chartered economist in Shanghai. "They're now trying to consume iron ore inventories. I think (the price increase) is a natural response."
Baoshan, whose parent is Baosteel Group Corp., is hiking its rates for steel products by up to CNY300/ton from February 2009.
Angang Steel (0347.HK) will raise its price of hot rolled steel by CNY350/ton in January, a Shanghai Securities Journal report said.
Angang company documents seen by Dow Jones Newswires showed smaller increases; Angang couldn't be reached for comment on the discrepancy.
Shougang Group (SHGG.YY) will raise prices by CNY300/ton, the report said. A Shougang official declined to confirm the report Thursday.
Maanshan Iron (0323.HK) will raise prices by CNY50-CNY200/ton in late December, the Shanghai Securities Journal report said. Maanshan officials were unavailable for comment.
Company documents seen by Dow Jones verified Baoshan's price increases.
Company documents showed Jiangsu Shagang Group Co., China's largest private steel producer, this week raised hot rolled coil prices by CNY100/ton, from CNY3,650/ton previously.
The price hikes come just a few days after China's trade data suggested the steel industry is still far from turning the corner.
Analysts warned then that the industry's troubles are far from over amid slack global demand and weakened real estate, construction and car industries at home.
Iron ore imports in November fell 7.9% from a year earlier, and crude steel output in November fell 12.4% year-on-year, sliding 18% on the month, according to official data.
Still, spot prices have recently stabilized at about 20% below 2008 benchmark contract prices, and ore inventories at Chinese ports have fallen from 89 million tons two months ago to about 59 million tons currently.
The Baltic Exchange Dry Index rose last week, driven by ore import orders from China.
The steel industry's fortunes may be better than most believed, an analyst said.
"Steel prices have been more volatile, and hot rolled spot prices (in China) have been trading in a wider range," said Zhu. "Downstream demand for some products has probably begun to rebound."
The price hikes signal the faith steel mills have in the effect Beijing's CNY4 trillion infrastructure investment stimulus would have in reviving domestic steel demand, Zhu said.
By Chuin-Wei Yap and Juan Chen
Source: Dow Jones Newswires