UPDATE 2-Baosteel ups steel prices, may signal iron ore deal

* Baosteel raises key prices by 9-13 pct, more than expected

* Bigger hike suggests Baosteel agreed 33 pct ore price rise

* Chinese steel market hot, but real demand doubtful (Adds background, writes through)

By Alfred Cang and Tom Miles

SHANGHAI, July 13 (Reuters) - China's Baosteel (600019.SS) will raise prices of its major steel products by 9 to 13 percent next month, more than expected, a move that may suggest mills have effectively given up their battle for lower iron ore prices.

Baoshan Iron and Steel Co Ltd, the listed unit of China's largest steel mill, will increase hot- and cold-rolled steel products by 9 to 13 percent compared to July, trade sources said on Monday, double expectations and the biggest one-off increase since Baosteel moved from quarterly to monthly prices last May.

For those following every twist and turn in this year's marathon negotiations over annual iron ore prices, the main input cost for mills, the latest deal appeared to be an effort to pass along higher-than-expected costs to its customers.

"I think it could mean that Baosteel has agreed to follow the price cut that Rio Tinto and Japanese steel mills signed," said Cui Jingyi, analyst at Guotai & Junan Securities.

Rio (RIO.AX)(RIO.L) in May agreed to a 33 percent cut in its annual selling price to most of its major Asian customers outside China, but China's mills have been arguing for a return to 2007 prices, implying a cut of at least 40 percent on purchases from Rio, BHP Billiton (BHP.AX)(BLT.L) and Vale (VALE5.SA).

But earlier this month a Shanghai-based newspaper, citing unnamed "informed sources", said the China Iron and Steel Association had agreed to the 33 percent price cut. Steel executives and Rio denied a deal, but most analysts still say that the price is all but inevitable.

"Previously some some steel mills held back the price hikes to prevent any negative influences on the iron ore price negotiation, and now the picture is clear for them to make their price adjustments," Guotai & Junan's Cui said.

The price talks have now blown up into a spying row after China detained four Rio executives, including one Australian, and accused them of getting state secrets in the form of inside information on the Chinese position in iron ore negotiations.

Baosteel officials declined to comment on the steel prices or iron ore negotiations.

For more reports on Rio Tinto's Chinese executives being detained, please click on [ID:nSP473911].

REAL DEMAND IN DOUBT

Baosteel's August price rises will be the third monthly increase in a row, taking prices to their highest since November, when the scale of the collapse in global demand was becoming clear.