Angang Steel, one of the mainland's major steelmakers, expects to increase its product prices by more than 10 percent in the second quarter to offset the surge in raw material costs.

Rising iron ore costs and fuel prices hurt Angang's profits last year, and Credit Suisse downgraded the firm to "under-performing" from "neutral" amid a gloomy earnings outlook.

"We can handle the increased costs by raising product prices," Fu Jihui, a director and company secretary at Angang Steel, said.

He added the average price of its products, mainly iron and steel, had been raised by 11 percent in the first quarter in addition to an increase of more than 10 percent this quarter.

Material costs remained high in the first quarter, and "we expect coking coal prices to surge further in the second half, but iron ore will stabilize", Fu said, adding that the coking coal price has soared to 880 yuan per ton in the first quarter from 710 yuan last year.

Shares in Angang Steel slid 2.52 percent to HK$17 yesterday after it reported lower-than-expected yearly profits. The firm earned 7.5 billion yuan last year - a 6.2 percent increase over 2006.

Total sales for 2007 gained 20 percent to reach 65.3 billion yuan. However, the gross margin declined to 22 percent last year from 23 percent in 2006 because of rising costs.

Chairman Zhang Xiaogang said high fuel prices and the central government's tightening of monetary policy will cast gloom over this year's outlook.

But he said the firm would strengthen cost controls and continue improving economic benefits.

(China Daily April 17, 2008)