By ROBERT GUY MATTHEWS

Higher raw materials and metals prices are expected to lift earnings this year at the world's biggest steel and mining companies.

On Wednesday, BHP Billiton reported earnings for the six months ended Dec. 31 more than doubled. Results due out this week for the fourth quarter and full-year from ArcelorMittal, the world's largest steel maker, and Rio Tinto PLC, the world's third largest miner are expected to show the benefit of higher steel and iron ore prices.Of course, the prices are prompting big steel consumers such as auto and appliance makers to forecast rising materials costs this year. Those higher costs could trickle down to consumers. Ford Motor Co. and WhirlpoolCorp. said their raw material costs will be higher.

"I think we are going to start seeing commodities start moving in the wrong direction in the next few months," Lewis Booth, Ford's chief financial officer, told those gathered at the International Auto Show last month.

Over the last few months, demand for minerals and metals has risen because of the continued strength in China's economy and slow recoveries in the U.S. and, to a lesser extent, Europe.

As a result, steel prices have risen between 10% and 30% in the fourth quarter and through the end of January, depending on the metal and location.

The prices of steel are expected to continue to rise because so much production capacity was taken out in 2009, resulting in a weak supply-to-demand ratio.

The price of ingredients to make steel—iron ore and coal—are rising sharply. Spot prices for iron ore and coking coal are expected to rise between 30% and 40% in 2010, which is boosting the fortunes of Rio Tinto and BHP. Prices for annual contracts between miners and steelmakers are currently being negotiated but are expected to rise as much as 40%. A contract is expected by April.

BHP Billiton said profit for the six months ended Dec. 31 was $6.14 billion, up from $2.62 billion a year ago. Revenue fell 17.5% to $24.58 billion, from $29.78 billion a year ago. Still, BHP said it was cautious about the speed and strength of the global recovery.

Most major brokerages have raised their stock ratings for BHP and Rio based on increasing metals and mineral prices. "If you are an iron ore producer, you should be pretty comfortable this year," said Gavin Wood, an analyst at Nomura International PLC.

Last month BHP gave its most positive outlook for commodities since the economic downturn, with iron ore a major component of its improved outlook. "During the December quarter, we saw strong price recovery driven by demand in China and restocking in the developed world," the company told investors in its latest report in January.

For the most part, steelmakers are expected to pass on higher iron ore and coal costs to consumers including appliance and auto makers. Some steelmakers, notably ArcelorMittal,U.S. Steel Corp., and Russian steelmakers, own their own iron ore and coal reserves. ArcelorMittal's iron ore mines can supply about half of its needs, while it can produce about 15% of its coal requirements.

As a result, its costs will fall relative to other steelmakers that have to buy more iron ore and coal, but it will sell its steel at about the same price, resulting in higher profit margins. "The future is looking more positive for ArcelorMittal. It will earn extra margin," said Thorsten Zimmermann, metals analyst for HSBC Bank PLC.

ArcelorMittal is expected to report Wednesday that it swung to a profit in the fourth quarter of 2009, with analysts' earnings estimates averaging about 40 cents a share. A year ago, the company lost $2.63 billion in the fourth quarter 2008.

Large buyers of steel aren't hitting the panic button because they typically buy steel on long term contracts that keep prices stable. Whirlpool, for instance, said steel is one of its biggest purchases. "In the big markets like Europe and North America we do have agreements within ranges, so I think our steel is pretty predictable, at least in the big markets," said Whirlpool Chief Executive Jeff Fettig. "In the emerging market that's always open to discussion."

Cummins Inc. is trying to mitigate those higher costs. "I think on metal markets we would see costs going against us, but the material, people have been doing it on value engineering, low-cost country sourcing, ongoing price negotiations," Chief Financial Officer Pat Ward told investors earlier this month.