“The substantial rise in iron ore prices in the last two-three months has exerted pressure on steel prices. Raw material prices have risen by nearly 12 percent in the January-October period, driven by Chinese demand, keeping steel prices at high levels,” said Ms Kavita Chacko, Economist, NCDEX.

The demand has remained strong with rising urbanisation in China and India.

“The surge in raw material prices is putting pressure on profits of steel companies prompting them to raise prices in the coming year. Top steel companies such as Arcelor Mittal and Corus have announced that they are planning to increase prices in the coming year,” Ms Chacko said.

Crude steel production in September for the 67 countries reporting to the International Iron and Steel Institute (IISI) was up 6.2 percent at 110.1 million tonnes (mt). For the first nine months of 2007, it was up 7.3 percent at 981.2 mt. The contribution of China in world steel production can be gauged from the fact that, the global steel output, excluding China, would have risen just 2.5 percent year-to-date and 1.6 percent in September.

Steel prices in China, which set the trend for the global market, is set to go up.

Mr Luo Bingsheng, Vice-Chairman of the China Iron & Steel Association, was on record saying that “low-cost production in China’s steel industry has ended. Steelmakers in China will raise prices in the first quarter because of higher raw-material costs.”

Backed by strong demand from stainless steel makers, nickel prices have risen since September on expectations of a recovery in demand for stainless steel, which accounts for over 65 per cent of nickel used.

Stainless steel production is expected to increase by 9.8 percent in 2008 following the fall in production in 2007.

Analysts feel that global demand for the metal will rise by 10 percent in the coming year reducing the level of inventories, currently at their highest levels since 2000.