labels: M&A
China calls for Europe to reject BHP Billiton - Rio Tinto merger news
06 October 2008

Senior steel industry advisor to the Chinese government, Xiaoye Wang, has asked European regulators to reject the proposed takeover of Rio Tinto, the second-largest iron mining company, by mining giant BHP for $170 billion, as it would be detrimental to China, Asia and harm the global economy.

Speaking at a conference in Melbourne law school, she said, "In my opinion this merger will have a very bad impact on China, the BHP merger should be reviewed by the Chinese anti-monopoly agency. China is the biggest consumer of iron ore products, and 40 per cent is from Australia. After the merger there will be two competitors only. I believe this is harmful for competition." (See: Chinese competition authorities may reject BHP bid for Rio

In July the US anti-trust regulators had given a conditional nod to BHP Billiton's bid for Rio Tinto, and the Australian competition and consumer commission approved the takeover last week (See: BHP's $114 billion bid for Rio gets Australia regulatory nod), leaving the European, Canadian and South African regulators to approve the deal. 

The European Union, which has until January 2009 to approve the deal will have a great bearing as some analysts feel that the European regulators will create hurdles to the merger (See: EU warns of tough scrutiny of BHP's takeover of Rio Tinto and EC puts review of BHP's $160 billion bid for Rio on hold; seeks more data

The Australian approval came amid strong opposition to the merger from international steelmakers from countries like China, Japan and Korea, as a combined BHP Billiton-Rio Tinto company would have too much control over raw material prices, with Chinese steel companies taking the lead as together they import more than a third of global output as they are the world's largest bloc of steel producers.

The Australian regulators deduced that the merger of BHP-Rio would little impact on the global prices nor would it be in a position to influence prices or cut back production to drive prices up as there was adequate alternate supply such as the Australian company 'Fortescue' who has its own ore mine, rail and port development in Australia besides Rio and BHP.

A combination of BHP Billiton and Rio Tinto would control nearly one-third of the world's iron-ore and China would not like that to happen. Chinese steel company Chinalco hit back at BHP when it combined forces with the US aluminum giant 'Alcoa' to acquire a 12 per cent stake in Rio for $14 billion in February.

Although China's own reserves of ore, though high, lack the quality required to make high-grade steel and the country relies heavily on imports from BHP and Rio in Australia and Vale of Brazil. China buys about 50 per cent of BHP's iron ore output and about 55 per cent of Rio's. China imports more than $14 billion of ore from BHP which is nearly 20 per cent of BHP's annual sales.

At the beginning of 2008 many steel experts had forecast that China's production and consumption will expand by more than 10 per cent compared to 2007 but Chinese steel companies are re-evaluating the global demand for steel as many countries are facing financial crisis and slowdown in their economy.

Xiaoye Wang, one of the architects who helped devise China's new anti-monopoly laws, said that China's ministry of commerce was in receipt of many objections to the merger.

Since China has no regulatory jurisdiction over the merger, ''I hope very much the European regulators will reject it," she said.

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China calls for Europe to reject BHP Billiton - Rio Tinto merger