Harbin Brewery Group Ltd, 29.6 percent owned by SABMiller Plc, the world's second-largest beermaker, raised its prices 10 percent last month and said more increases may follow because of higher barley costs.

　　China's oldest brewer, founded by Russians in 1898, said in an e-mail to Bloomberg News that higher barley prices have led to a 3 percent increase in production costs.

　　The cost of the grain used to make beer accounts for around a quarter of Harbin Brewery's total production cost, the company said. The higher prices haven't dented sales, ING Financial Markets analyst Lilian Leung said in a research note.

　　"Although major competitor China Resources Brewery didn't follow the price increase, Harbin Brewery didn't suffer a significant change in its sales volume in January," said Leung, who visited Harbin Brewery's management recently.

　　Harbin Brewery, based in Heilongjiang Province abutting Russia, is China's fourth-largest brewer and dominates the beer market in the nation's northeast. Heilongjiang accounts for around 60 percent of Harbin Brewery's sales, Leung said.

　　China's beer market, a fragmented network of breweries in major cities and provinces, is undergoing mergers and acquisitions as overseas brewers expand in the world's second-biggest beer market.

　　SABMiller, maker of Lowenbrau, Miller and other brands, paid US$86.6 million for its Harbin Brewery stake last October. The British-based brewer also has a venture with China Resources Brewery, China's second-largest brewer, leading to some speculation that Harbin Brewery might one day be merged into the group, analysts said.

　　Harbin Brewery said beer sales rose 27 percent to 1.2 million tons of beer last year. The company said it expects sales volume to rise to 1.45 million tons this year.

　　Leung, who has a "buy" recommendation on the stock, is forecasting Harbin Brewery shares will rise to HK$4.20 (54 US cents). She's predicting profit will rise to HK$170 million this year from a forecast of HK$110 million last year.

　　(Bloomberg News)