Via: FT.com

Global inflation fears deepened as Chinese steelmakers agreed to a record increase in annual iron ore prices in a move likely to boost the cost of cars, machinery and other products.

Chinese millers agreed to pay Anglo-Australian miner Rio Tinto up to 96.5 per cent more for their ore supplies this year, the largest ever annual increase and well above the 9.5 per cent increase paid last year.

The rise suggests that demand for commodities from emerging economies remains strong, in spite of the US slowdown, fuelling fears that global inflation will continue to rise. The rise – an average 85 per cent – surpasses the record increase of 71.5 per cent agreed in 2005, when the commodities boom gathered pace.

“Commodity-led inflation risks appear to be growing,” said Tobias Levkovich, Citi chief strategist.

Sam Walsh, chief executive of Rio’s iron ore unit, told the Financial Times on Monday that the agreement indicated ongoing robust demand for commodities. “Economic growth in China, India and the Middle East continues to be outstandingly strong.”

Analysts said steelmakers are likely to pass the rise in costs on to customers, such as construction companies and car makers.

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