ASIA STEEL-China prices climb on rising iron ore costs

* China prices up for fifth consecutive week

* Increasing ore prices help to lift steel market

* Chinese steel majors to raise December prices -traders

By Alfred Cang and Edmund Klamann

SHANGHAI, Nov 9 (Reuters) - Chinese spot steel prices rose 3 percent from two weeks ago and retained the upside momentum of the past five weeks, buoyed by rising iron ore prices and China's solid economic recovery which is boosting consumption.

After a brief downward correction in September, steel prices in China have been picking up since early October, with benchmark hot-rolled coil prices quoted in south and east China rising to around 3,602.5 yuan ($528) a tonne on Friday, data from Metal Bulletin showed.

For a graphic on China's steel prices, click: here

Traders expect that the country's two major steel mills, Baoshan Iron and Steel (600019.SS) and Wuhan Iron and Steel (600005.SS), will increase their prices for December sales this week as they aim to pass higher costs on to downstream users.

"Steel prices are rising due to higher iron ore costs and that is the only direct reason," said analyst Hu Kai at industry consultancy Umetal.

Benchmark Indian iron ore prices are approaching $100 a tonne and are expected to recapture that psychological milestone this week due to sustained Chinese demand and a relative shortage of supply.

High demand for ore was confirmed by several consecutive weekly declines in ore inventories at major Chinese ports, which fell by 2.4 percent last week.

"People are talking about higher iron ore prices for next year, as demand will be boosted globally with the bottoming-out of the economy," said a Shanghai-based steel dealer.

"So the outlook for steel prices is bullish, too. Prices in the first half of next year could return to the levels of the first half of 2008, before the global economic crisis broke out," he said.

China's economic growth picked up last quarter, while official domestic media have reported that the country's new bank lending may have hit 300 billion to 400 billion yuan in October, down from the previous month but still relatively strong.

China Construction Bank said in a research note that China's GDP growth would exceed 10 percent in the fourth quarter, with an 8.3 percent rate for all of 2009, while the central bank was unlikely to adopt serious monetary tightening anytime soon.

The upbeat outlook has boosted Chinese steel traders' confidence in rising steel prices.

"The market is supported half by fundamentals and half by liquidity," said a researcher at a Beijing-based trading house. "We expect steel prices to rise further in the rest of the year as there are no indications yet of a rapid fall in money supply." ($1=6.826 Yuan)