June 24th, 2008
09:28 AM GMT
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HONG KONG – Iron ore prices are rising fast and Chinese steelmakers have agreed to pay up. So why should you care?

Because that means chances are high everything you buy that is made of steel – like a new car – is set to get more expensive.

People worldwide are worried about the rising cost of commodities like oil, copper, and tin. And now Chinese firm Baosteel is willing to pay nearly double for iron ore from Anglo-Australian miner Rio Tinto in the industry's biggest ever annual rise. Analysts say it's a sign raw materials are scarce and demand is strong.

Iron ore is a key ingredient to make steel. So the fear now is that this deal will pump up steel prices worldwide at a time when pressure is mounting on central bankers, including those at the U.S. Federal Reserve, to keep inflation in check by tightening lending.

Some people worry about how raising interest rates in the United States could impact its slowing economy. There is also a fear that the higher price of steel will raise costs for manufacturers in China, costs that may have to be passed onto consumers as China sells its goods overseas. They also say the agreement shows how Chinese companies are gaining influence in world commodities markets as they pay top dollar to feed the country's economic expansion. 

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