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China attacks plan for iron-ore deal
Published on: 2009-12-18
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BEIJING—The Chinese steel industry Thursday upped the ante against the proposal by Rio Tinto Ltd. and BHP Billiton Ltd. to combine their iron-ore operations, describing it as a threat to the global steel market and calling for unified global opposition to the project.

The push by China comes as Brazil's Vale SA is moving to deepen cooperation with China's steelmakers, which could help ensure the flow of iron ore to China.

Vale, the world's largest iron-ore supplier, said Wednesday it is working to build huge shipping berths and iron-ore distribution centers that would reduce the cost of shipping ore to China, undermining the current advantage enjoyed by the Anglo-Australian miners. The plans, some of which require approval by Chinese authorities, signal that Vale is angling to grab a larger share of the Asian iron-ore market.

Thursday, a top Chinese steel executive said an increase in iron-ore prices next year is "unlikely." That view contrasted sharply with market expectations of a 10% to 20% increase in 2010 term prices, which China is about to negotiate with miners.

China, the world's largest iron-ore importer and consumer, saw its efforts to influence 2009 term prices fall apart this summer as the China Iron and Steel Association, then leading the negotiations, unsuccessfully held out for a deeper price cut than Rio Tinto and BHP had agreed on with other Asian customers.

Relations between CISA and the Anglo-Australian miners were already frosty over the imprisonment of four Rio employees on allegations of commercial spying and bribery during 2009 price talks.

"Steel businesses of all countries should unite to resist the Rio-BHP merger proposal," the association said Thursday in a statement published in Chinese-language media. "All countries should use antimonopoly measures to block any attempt at monopoly by Rio and BHP."

China's "antimonopoly bureau should also resist the merger according to antimonopoly law," it said.

The two Anglo-Australian miners signed a binding agreement earlier this month to combine their Western Australian iron-ore operations. They have filed submissions with the European Commission and the Australian Competition and Consumer Commission, seeking approval for the deal.

China's Ministry of Commerce said Wednesday it hadn't received an application for regulatory review from the miners.

Vale currently has a 33% share of the global iron-ore market, based on World Steel Association data. By combining operations, Rio and BHP, with 19% and 17% of the market respectively, would leapfrog to the top spot.

The CISA called the venture a "form of monopoly...a threat to fair competition principles...[which] could cause an irrational increase in iron ore prices."

Separately, a top Chinese steel executive hinted at tougher price negotiations, backtracking from earlier views that China could stomach a small price increase. "Because there's still pessimism over the financial situation for global steel firms this year, it's unlikely that iron ore prices would rise next year," Ma Guoqiang, general manager of Baoshan Iron & Steel Co., said in an interview carried by state media.

Baoshan is a significant voice not only because it is the listed unit of China's largest steelmaker, Baosteel Group Corp., but also because recent reports suggest it has taken the lead in 2010 iron ore price negotiations, a role it temporarily ceded to CISA. Baosteel confirmed the details of the state media reports.

Analysts have widely talked about a 10% to 30% increase in 2010 term prices, given a strengthening global economy, a stronger Australian dollar and rising steel prices.

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