Inflation fears as mainland steel mills raise prices

Iron ore at record highs may mean smaller firms cannot pass along costs

The decision by Chinese steel mills to fire up prices amid soaring raw material costs has raised concern about inflation risks in the world’s second largest economy and the impact this may have on smaller manufacturers who cannot pass on higher costs.

Commodity prices are above pre-pandemic levels in China, with the cost of iron ore, one of the main ingredients used to make steel, hitting a record high of US$200 per tonne last week.

That prompted nearly 100 steelmakers, including producers

as Hebei Iron & Steel Group and Shandong Iron & Steel Group, to adjust their prices yesterday, according to information posted on industry website Mysteel.

Baosteel, the listed unit of China’s largest steelmaker Baowu Steel Group, said it would raise its June delivery product by up to 1,000 yuan (HK$1,206), or more than 10 per cent.

Prices rose 6.3 per cent last month after gains of 6.9 per cent in March and 7.6 per cent the previous month, according to Post calculations based on China’s domestic steel price index, which is published by the Steel Home consultancy.

As of last Friday, steel prices were up 29 per cent in the year to date.

Although the effect on inflation is not yet clear, the spike in prices could threaten a range of downstream industries, as steel is used in construction, home appliances, cars and machinery.

A survey of the China Iron & Steel Association, a semi-official industry body representing most producers, found that reinforcing bar used in construction soared 10 per cent to 5,494 yuan per tonne last week, while cold-rolled sheet steel, mainly used for cars and home appliances, rose 4.6 per cent to 6,418 yuan per tonne.

Consumer and producer price data is due for release today. Consuch sumer price gains are expected to accelerate to 1 per cent last month from a year earlier, up from 0.4 per cent in March, according to a Bloomberg survey of economists.

The producer price index, which reflects prices factories charge wholesalers, is forecast to rise to 6.5 per cent in April year on year, from 4.4 per cent a month earlier.

The high price for iron ore in China comes amid a trade dispute with its biggest supplier Australia. Last week, China’s top economic planning agency suspended highlevel economic dialogue between the two nations.

China’s reliance on Australia has worried some steelmakers, but analysts from Zhongtai Securities said the suspension would not have much impact on steel.

The brokerage attributed the steel price rises more to government efforts to scale back capacity.

But analysts Guo Hao and Cao Yun warned China should not reduce its iron ore imports from Australia because it will “drive up prices significantly”.

“Other ... term measures may be used, such as accelerating mining in other countries, to reduce its reliance,” they said in a note.

Worries over imported inflation have been raised at the highest level of China’s government, including in a meeting last month of the Financial Stability and Development Commission.

Authorities vowed to “maintain basic stability of prices” and “pay special attention” to the trends in commodities prices.