According to a leading Chinese business magazine, the country’s leading steel industry group has come out against the joint venture deal consolidating iron ore assets of BHP Billiton and Rio Tinto Australia.
The article in China’s Caijing Magazine is the first shot to be fired from opponents to the deal.
The World Steel Association has also indicated its unease with the proposal,
"Speaking on behalf of steel producers worldwide, Worldsteel Director General Ian Christmas said: "The announcement of this possible JV does nothing to allay the far greater competition issues that we were and are still concerned about.
"We are again calling on competition authorities to seriously examine the obvious implications for future pricing regimes and the competitive environment for iron ore.
"At present we cannot see how this JV could be in the public interest and thus it should not be allowed to proceed.
"Even the largest steel company in the world today accounts for less than 15% of total world steel production.
"We stand ready to provide access to our data to help competition authorities review the impact of this new JV proposal."
Regulators around the world will have to give their approval, especially the European Commission, which was ready to kill the original BHP takeover of Rio back in November when BHP bailed out of the deal.
The article in the Beijing-based Cajiing magazine said that China Iron and Steel Association (CISA) General Secretary Shan Shanghua had also denied media reports that Chinese steel makers would accept a 33% cut in iron ore term in contract talks with the big two Australian mills.
That would match the recent settlements with Japanese, Taiwanese and South Korean mills.
"After BHP Billiton and Rio Tinto establish the joint venture, large iron mines in Australia will belong to one company and this will lead to a monopoly operation," Shan was quoted as saying in the Caijing report,
"China needs to import almost half of the iron ore it consumes, while the volumes from BHP Billiton and Rio Tinto account for more than half of imports."
The World Steel Association also said the BHP-Rio Tinto deal would leave just two suppliers — the Australians’ joint venture and Brazil’s Vale — controlling 70% of the global iron ore trade.
The association called on competition authorities to seriously examine the deal, announced as Rio Tinto scrapped its proposed $US19.5 billion tie-up with the Chinalco.
Industry website Steel Business Briefing reported on Friday that CISA and Baosteel. China’s largest steelmaker had agreed internally to accept terms similar to those already struck with other Asian mills. This was reported in Australian media over the weekend.
The BHP deal isn’t as cut and dried as many enthusiastic business reporters would have you believe.
There’s the question the ACCC should be insisting on as a minimum here in Australia: that the combined Rio-BHP should open up its rail and ports infrastructure to all comers, and end all opposition to third parties from gaining access to the rail facilities (and even port facilities).
The combined company might have to sell some mines given the enormous power it will have.
BHP’s $US5.8 billion cash payment for a 5% interest in the combined operation suggests an overall enterprise value of $US116 billion for their Pilbara iron ore businesses
More important though than the ACCC in Australia will be the attitude of the European Commission, which was grumbling about the original takeover offer.
This is the statement the European Commission’s Competition department issued last November when BHP terminated the offer.
"The European Commission intends to close its investigation under the EU Merger Regulation into BHP Billiton’s proposed acquisition of Rio Tinto and not adopt a final decision as BHP Billiton has informed the European Commission that it has abandoned the proposed acquisition and has withdrawn its notification.
"The Commission is satisfied that the planned transaction has effectively been abandoned and will not proceed.
"In a press release dated 25 November 2008 BHP Billiton announced that even if the Commission were to clear the proposed transaction unconditionally, BHP Billiton’s directors intended to recommend that its shareholders vote against approving the transaction.
"The press release explained that due to the continued deterioration of near term global economic conditions the company’s management believed that the acquisition of Rio Tinto was no longer in the best interests of BHP Billiton shareholders.
"On 26 November 2008 BHP Billiton decided to formally abandon their pre-conditional offer on Rio Tinto and withdrew their notification.
"The Commission had opened an in-depth investigation of BHP Billiton’s proposed acquisition of Rio Tinto on 4 July 2008 (see IP/08/1108 ) because the Commission’s initial market investigation had indicated that the proposed takeover raises serious doubts as to its compatibility with the Single Market and could have resulted in higher prices and reduced choice for these companies’ customers."
How a joint venture will meet those objections and suspicions will be the key to any re-worked deal to be offered to the EC for approval
There’s a strong chance the EC will regard BHP coming again with more suspicion after saying
