Shougang Corp., the only Beijing- based steelmaker, said production costs would rise by 2.8 billion yuan ($408 million) this year on higher iron ore prices.

The cost of making one ton of iron jumped 38 percent to 3,600 yuan in the first half of the year because of higher coal and iron ore prices, the company said in a newsletter today, citing Wang Baomin, head of planning and finance.

Iron ore prices have surged for six years as Chinese demand outpaced global supplies, putting pressure on the profit margins of steelmakers. Steelmakers are trying to push through price increases to carmakers and builders to recover costs.

Production costs may rise further on higher electricity rates and crude oil prices, the statement said, without elaborating. Shougang is China's seventh-largest steelmaker by capacity last year, according to the China Iron and Steel Association.

Chinese steelmakers, the largest consumers of iron ore, last week agreed to pay Rio Tinto Group as much as 97 percent more for annual supply contracts that started April 1. Benchmark coking coal prices tripled this year from April. Crude oil futures reached a record $143.67 a barrel on June 30.