POSCO ups steel prices by 16-18%: Sources

South Korea's POSCO will raise domestic steel product prices by 16% to 18% from April 22, the first hike since June last year, industry sources said on Tuesday.

The price hikes initially buoyed shares of the world's third-largest steelmaker by more than 2% before gains were shaved on the view that global steel demand was projected to be bearish, led by China.

While POSCO officials declined to comment on the long-awaited price hikes, industry sources said the country's top steelmaker will raise prices of hot-rolled, cold-rolled and thick plates by 160,000 won (USD 147) a tonne each.

POSCO has come under pressure from the government of South Korea, heavily dependent on energy and industrial resources imports, to contain price rises due to rising inflation.

Its failure to hike prices to cover surging costs hit its earnings, with POSCO failing to meet its annual profit target last year.

It is expected to post another fall in profits for the January to March period from a year ago when it reports results on Friday.

"The hike was bigger than the market expected. The market forecast was smaller because a planned hike was delayed and there were some pressure to cooperate with the government working to stem inflation," said Kim Hyun-tae, a Hyundai Securities analyst.

"But my view on POSCO share direction is pretty conservative, because the valuation is not that cheap considering falling income."

Park Byung-chil at Shinhan Investment Corp said: "Shares in POSCO recently underperformed as it had not fully reflected inflation in its product rates. Now it seems POSCO will be freed from this pressure."

Weigh on global demand outlook

While analysts think the latest price rise will help improve POSCO's earnings in the second quarter from the previous quarter, some suggest Japan's earthquake and China's tightening may keep its earnings under pressure.

Japan's worst earthquake and tsunami on record on March 11 disrupted production in Asia's top steel exporter, raising expectations of higher demand for Korean products.

Yet hopes for a recovery in the steel market have been dashed by China, the world's biggest producer, which raised banks' required reserves on Sunday for the fourth time this year.

A weaker-than-expected market forced many Asian mills to put off price hikes, or even cut prices. China's major steelmaker Angang will join its peer Baoshan Iron & Steel Co Ltd in cutting main steel product prices for May bookings.

Hwang Eun-yeon, executive vice president at POSCO, said he expects Japanese steelmakers to temporarily increase exports following the quake to offset slumping demand in the domestic market.

POSCO previously said it would be more flexible in pricing steel products from the second quarter of this year, dropping its quarterly pricing scheme.

Shares of POSCO were up 0.32% in a broader market down 0.83% as of 0317 GMT.