China shares inch lower as steel slides

[HenryTo]

China shares inch lower as steel slides
SHANGHAI, April 6 (Reuters) - China's shares drifted 0.15 percent lower on Wednesday morning after steel counters extended losses over fears of soaring raw material costs and further policies to slow the economy.
The Shanghai composite index had slipped to 1,189.977 points by midday break. Analysts expect the index to continue heading south in the short term.

Steel shares endured further losses in early trade as jitters mounted over sky-rocketing prices for iron ore and stringent policies to curb fixed asset investment growth.

Industry leader Baoshan Iron and Steel Co. Ltd. slid 1.6 percent to 6.05 yuan. Wuhan Iron and Steel Co. Ltd. tumbled 3.4 percent to 3.97 yuan.

They have shed 8 percent and 13 percent, respectively, since Feb. 23, when news broke that Companhia Vale do Rio Doce and others would raise prices for iron ore -- a key raw material for steel -- by 71.5 percent.

Industry sources say top global miner BHP Billiton Ltd./Plc. is still negotiating iron ore rices with Chinese steel mills, and demanding additional premiums on top of the industry-wide price increase for 2005.

"Pricier ore and austerity measures to rein in the overheated property sector could combine to squeeze margins for steel makers," said Cao Xuefeng, an analyst at West China Securities.

"Since steel shares account for a large part of the stock market in terms of capitalisation, the bourses are unlikely to buck up in April."

Beijing's economic cooling steps, a series of stock offers and corporate scandals have driven China's key index 6 percent lower this year, on top of a 15 percent dive in 2004 that made it the world's worst-performing major index.