Mumbai: A merger of BHP Billiton and Rio Tinto might significantly influence global iron-ore supply and prices, Australia's competition watchdog has warned.

This could lead to steelmakers in Australia paying ''significantly'' higher prices for the raw material, the Australian Competition & Consumer Commission (ACCC) said.

The ACCC has issued a `Statement of Issues' on the proposed acquisition of Rio Tinto Ltd and Rio Tinto plc by BHP Billiton Ltd and has sought more clarifications on certain issues.

''The recent rapid industrialisation of China and India has resulted in unanticipated growth in the demand for iron ore. With the production of most incumbent seaborne iron ore suppliers being fully committed, this demand growth has triggered increased iron ore exploration activity in Australia and elsewhere and necessitated the commencement of supply by small iron ore suppliers with relatively high marginal costs.

As a result of high cost iron ore coming into production, there have been substantial increases in spot and benchmark prices for all forms of iron ore,'' ACCC said in the website release and has sought public comments.

''Significant quantities of iron ore are supplied in Australia at prices that are linked to global iron ore prices. Global iron ore prices therefore have a direct effect on Australian steel makers.

Furthermore, since iron ore is a significant input into the production of steel, the price of iron ore also has an impact on the price of steel and other steel-based products consumed in Australia'' it added.

BHP Billiton, the world's biggest resources company, formally launched an all-share takeover bid for smaller rival Rio Tinto in February, which the latter snubbed as not reflecting its true value and future prospects.

So far, BHP Billiton has received US regulatory approval, and has begun the filing process to get clearance with China's Ministry of Commerce.

The resources multinational had already filed for clearance in the European Union, the US, Canada and South Africa, and would file in Taiwan, Korea and Japan at a later date.

BHP Billiton today said that its proposed takeover ''makes more sense than ever'', and that his company was hard at work trying to make it happen.

''In line with the ACCC's Merger Review Process Guidelines, the ACCC has established a secondary time line for further consideration of the issues. The ACCC anticipates completing further market inquiries by 5 September 2008 and anticipates making a final decision by 1 October 2008,'' the regulator said, adding that the anticipated timeline can change in line with the Merger Review Process Guidelines.

The ACCC review provides an opportunity for all interested parties (including customers, competitors, shareholders and other stakeholders) to ascertain and consider the primary issues identified by the ACCC. It is also intended to provide the merger parties and other interested parties with the basis for making further submissions should they consider it necessary.

A dual listed company comprising BHP Billiton Ltd (listed on the Australian Securities Exchange) and BHP Billiton plc (listed on the London Stock Exchange), BHP Billiton is the world's largest diversified resources company. Both companies share a single board of directors and management team.

BHP Billiton operates ten business units, aligned with the commodities that the company extracts and markets. These business units include iron ore, energy, coal, metallurgical coal, aluminium, base metals and uranium.

Rio Tinto, also a diversified mining group with global interests and operations, is a dual listed company comprising Rio Tinto Limited (listed on the Australian Securities Exchange) and Rio Tinto plc (listed on the London Stock Exchange).

Rio Tinto activities are concentrated in Australia and North America, but Rio Tinto is also present in South America, Asia, Europe and southern Africa.

Through its global operations, Rio Tinto produces a range of minerals, including iron ore, thermal and metallurgical coal, bauxite, alumina, aluminium, copper, and uranium.

''Of the approximately 1,600 million tonnes of iron ore produced globally in 2007, over half was exported and traded, typically via sea freight. Much of the iron ore that is not exported is produced at mines with integrated or co-located steelmaking facilities, giving rise to a distinction between landborne or captive iron ore production and seaborne iron ore supply,'' ACCC said.

The vast majority of traded iron ore is supplied under long term contracts. Steel makers and iron ore miners typically prefer long term contracts for security of supply and investment certainty. A small proportion of global iron ore trade occurs on a spot market basis, it added.

Iron ore supplied under long term contracts is currently priced according to global benchmark prices. Global benchmark prices for each form of iron ore are determined by annual negotiations between the main global suppliers and the main steel makers and generally reflect a consensus as to the balance between supply and demand over the coming year. The first price settlement has traditionally flowed through to all iron ore supplied under contracts, it noted.

The main global suppliers of iron ore lump and iron ore fines are BHP Billiton, Rio Tinto and Brazilian supplier Companhia Vale do Rio Doce (Vale). The main global suppliers of iron ore pellet are Vale, Rio Tinto and Luossavaara-Kiirunavaara Aktiebolag (LKAB).