Japanese and South Korean steelmakers have agreed to a 65 per cent jump in iron ore prices over the 12 months from April.
While Baosteel, which represents Chinese steelmakers in the talks, declined to comment, industry insiders said past performance was expected to lead to acceptance of the terms, up from previous expectations of 30-40 per cent.
As a result, Baosteel and other Chinese steelmakers are likely to raise steel prices early this week.
Tokyo-based Japan Steel Engineering Holding Co., a steel maker, announced yesterday that it agreed with Brazil's Vale, a major ore supplier, after iron ore prices rose to $78.90 per ton. Japan's Nippon Steel and South Korea's PoSCO have also reportedly agreed to the new price.
The benchmark price talks were agreed between the world's three biggest iron ore producers - Vale, Rio Tinto and BHP Billiton - and steelmakers in Asia and Europe.
The latest round of talks, which began in December, led to the sixth straight increase in iron ore prices and the second biggest since 2005, when steelmakers agreed to a 71.5 per cent increase demanded by iron ore producers.
Analysts said the growth would squeeze profit margins for steelmakers, which are also facing higher coal and shipping costs.
"The rise in steel product prices for Chinese steel mills is expected to be even greater than before as the 65 percent increase will increase production costs by about 400 yuan ($55.71) per ton," said Wang Chaohua, an analyst at Tianxiang Investment Advisors, a company
"Chinese steel producers are expected to raise steel prices to a level that can largely compensate for rising raw material costs as domestic and overseas demand remains strong," said Zheng Dong, an analyst at Guosen Securities.
In the international market, steel prices showed rising iron ore prices and expectations of strong demand during the week-long Spring Festival.
"China's steel exports have further decreased, exacerbating the global supply shortage," Zheng said. China's steel exports fell 5.4 percent to 4.14 million tons in January, according to China Customs.
Reconstruction after the big snowfall will also increase domestic demand for steel, analysts say.
Steel stocks rose in yesterday's trading. Baosteel shares rose 1.75 per cent to Rmb17.49.
