Steelmakers see red as BHP-Rio sign deal to form iron ore mining giant

10 June 2009

Analysts at Credit Suisse, one of the banks underwriting Rio's US $15.2-billion rights issue said BHP and Rio have been estimating $10 billion worth of benefits on the conservative side. The actual hidden synergy of combining their adjacent iron ore mines, ports and railways could be twice the amount say analysts in a communication to clients.

BHP and Rio last week signed a deal to form a $116-billion iron ore giant, which is expected to take a year to complete. The EU competition regulator and the European Commission are expected to provide the biggest hurdle to the creation of the giant iron ore company.

Opposition to the deal, which will create the world's largest iron ore miner, is expected to be strong and yesterday the Japan Iron & Steel Federation lent support to other global industry groups in denouncing the deal as anti-competitive.

Federation chairman Shoji Muneoka, who is also president of the biggest Asian steelmaker, Nippon Steel, said that the establishment of the joint venture would mean integration of all iron ore production of the two companies in Western Australia.

Other associations that have opposed the deal include he China Iron & Steel Association, the World Steel Association and EU steel group Eurofer in opposing the deal.

The BHP Rio deal raises concerns among steel makers as the tie-up would mean the group acquiring control over 40 per cent of the global iron ore trade. That would give the group too much control over pricing and supply.