JOHANNESBURG (miningweekly.com) – Competition authorities should interrogate the potential anticompetitive consequences for the iron-ore market should the newly-unveiled Rio Tinto/BHP Billiton joint venture (JV) be allowed to proceed, the World Steel Association (Worldsteel) said at the weekend.
The Brussels-based association, which represents 180 companies, producing about 85% of the world’s steel, raised similar concerns in February 2008, when BHP Billiton made its hostile bid for Rio Tinto. That bid was subsequently abandoned in light of debt concerns at Rio, made acute by changed economic circumstances.
But Worldsteel’s renewed anxiety followed on from an announcement by Rio Tinto on Friday, indicating that it would not continue with a $19,5-billion deal involving Chinalco, of China. Instead, it would raise $21-billion from a share sale and enter into an iron-ore JV with BHP Billiton, the world’s largest miner.
Worldsteel argued that, should the BHP Billiton/Rio Tinto JV in the Pilbara region of Western Australia proceed, almost 70% of world seaborne iron-ore exports would be controlled by two entities: the JV and Vale, of Brazil.
It estimated that Vale controlled about 36% of seaborne iron-ore trade, Rio Tinto some 19% and that BHP Billiton’s share was around 14%.
Under the terms of the proposed agreement, BHP Billiton would pay Rio Tinto $5,8-billion to create the 50:50 JV, which would involve the combination of the two companies iron-ore assets in the Pilbara region.
Rio Tinto said that the JV would result in savings of more than $10-billion, but both miners stressed that they would continue to sell iron-ore independently through their own marketing groups.
Worldsteel DG Ian Christmas said that the announcement did nothing to allay the competition issues it had raised when the earlier merger was proposed.
“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,” Christmas added.
He acknowledged that Worldsteel had supported the consolidation of steel businesses, but stressed that this had not been to the extent of “endangering competition”.
“Even the largest steel company in the world today accounts for less than 15% of total world steel production,” he said, adding that it was ready to provide cooperate with the competition authorities in their review of the JV