June 22, 2010 / 12:47 AM / 10 years ago

UPDATE 2-S.Korea POSCO raises steel prices 6 pct from July

* POSCO raises local product prices by 6 pct from July

* Price increase below market expectations

* Second rise this year; shares close up 0.91 pct (Adds more quotes, details, and updates shares)

By Rhee So-eui and Jungyoun Park

SEOUL, June 22 (Reuters) - South Korea’s POSCO (005490.KS) said it would raise prices of its benchmark steel products by a less-than-expected 6 percent from July, but the increase would not be enough to cover higher raw materials prices.

POSCO, the world’s No.4 steelmaker, said in a statement on Tuesday the domestic price of hot-rolled steel would rise to 900,000 won ($765.4) per tonne from 850,000 won. Steel plate would be revised up to 950,000 won from 900,000 won.

The increase comes after the company raised domestic product prices by 25 percent in late April, its first price adjustment since unexpectedly making its biggest-ever price cuts of up to 20 percent in May last year. [ID:nSEO318736] [ID:nTOE63M02A]

In Tuesday’s statement, POSCO, which relies imported iron ore, said third-quarter raw materials prices climbed by more than 20 percent from the second quarter, indicating a rise of 110,000 won to 120,000 won per tonne in steel products.

“I do not think the price rise fully reflects the rate at which raw material prices are rising. The market had expected a rise of as much as 10 percent raise, and the announcement falls short of that,” said Lee Won-jae, an analyst with SK Securities.

“It is probably because Chinese steel prices have been weak recently. Also, POSCO seems to be taking into account the fact that some key customers, such as builders, are still struggling.”

For a TABLE on POSCO product price hikes, [ID:nTOE65D02Q]

TOUGHER H2

POSCO Chief Executive Chung Joon-yang said this month he expected a difficult business environment in the second half because of oversupply in the domestic market and increasing steel imports. [ID:nTOE658073]

South Korea’s steel demand is expected to grow 13 percent in 2010, with recovery in demand set to contract sharply in the second half of the year, think tank POSCO Research Institute (POSRI) said earlier this month. [ID:nTOE65902D]

HI Investment & Securities analyst Chung Ji-yun said: “The increase was a bit smaller than the market had expected, but I think it was prudent move on POSCO’s part, given the uncertain second-half outlook for the industry.”

“Certainly, there are concerns about raw materials prices, but higher prices are not immediately reflected ... existing inventories will well cover POSCO’s needs for most of July. POSCO could watch industry trends, and may make progressing decisions later on.”

POSCO, which ranks behind ArcelorMittal ISPA.AS, Nippon Steel and Baosteel, said this year it would adjust steel prices on a quarterly basis if raw materials prices were set quarterly instead of annually.

The top three global iron ore miners — Vale (VALE.N) VALE5.SA, BHP Billiton (BHP.AX) BLT.L and Rio Tinto (RIO.AX) (RIO.L) — have shifted from fixing prices annually to quarterly.

Leading Chinese steel mill Baosteel (600019.SS) has not formally agreed a price for iron ore in the third quarter but may have to swallow whatever the big miners offer, a company official said last Friday. [ID:nTOE65H04O]

In the cost of iron ore it buys from Vale, Germany’s biggest steelmaker ThyssenKrupp (TKAG.DE) said last Saturday it expected a second price increase this year in July. [ID:nLDE65I088]

Shares of POSCO, in which billionaire investor Warren Buffett's Berkshire Hathaway (BRKa.N)(BRKb.N) owns about 4.5 percent, closed up 0.91 percent at 497,000 won on Tuesday, outperforming the broader market .KS11. ($1=1175.9 Won) (Additional reporting by Cho Mee-young; Editing by Chris Lewis and Clarence Fernandez)

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