Baosteel heeds request, hikes prices by 5%

BEIJING, May 30 -- Baoshan Iron & Steel Co plans to raise prices in the third quarter by around 5 percent, a smaller margin as the mill is heeding the central government's call for stable prices after the earthquake in Sichuan Province, said a source close to the company.

The prices will be officially published next week. The third-quarter price announcement, originally due on May 20, was postponed after the 8.0-magnitude quake in the province on May 12 as the government called on major mills not to increase prices for products used for post-quake reconstruction effort.

Prices of hot-rolled steel coil will be raised by 200 yuan to 5,042 yuan a ton from the second quarter, while that of cold-rolled coil will rise by 300 yuan to 5,896 yuan a ton, the source said, adding that's the initial plan and prices may still be adjusted at the final stage.

GF Securities analyst Liu Baoyao said Baosteel should have raised prices by 300 to 500 yuan based on costs and supply and demand, without taking the government intervention into account.

Baosteel, the listed unit of Baosteel Group, is caught in a dilemma. It has to raise prices to match international rivals and cover increasing costs for the benefit of shareholders, but it cannot increase them too high given the central government's request.

"As Baosteel Group's price negotiation with BHP Billiton and Rio Tinto on iron ore supply hasn't concluded, a too big steel price rise won't do good to Baosteel as this will create an impression you are very much able to absorb the cost increase," said Mysteel analyst Liu Yuan.

Baosteel raised its second-quarter prices by a higher-than-expected 17 to 20 percent, following an up to 8 percent jump for the first quarter, as costs for raw materials such as iron ore soared.

Liu Yuan said Baosteel should set prices monthly, instead of adjusting them seasonally, as this could help it to respond to market conditions more quickly.

(Source: Shanghai Daily)