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Wed, Nov 21, 2007 - Page 10 News List

Steel companies oppose BHP and Rio Tinto alliance


The world's steel industry on Monday declared its opposition to BHP Billiton's ambitious proposal for a US$150 billion takeover of mining rival Rio Tinto.

The Brussels-based International Iron and Steel Institute (IISI), which represents many of the world's steelmakers, warned that an alliance of the two would create a near-monopoly.

"This deal is not in the public interest and should not be allowed to proceed," IISI secretary general Ian Christmas said.

The Japanese Iron and Steel Federation was equally robust in its opposition.

"BHP's acquisition of Rio Tinto would create a huge Gulliver and would impede a healthy price mechanism," federation chairman Hajime Bada said. "We are opposed to such an acquisition."

The IISI, which represents 180 steel companies, including 19 of the world's top 20, is calling on competition regulators in the EU, the US, China, Australia and Japan to recognize "the threat this merger poses to the interests of steel consumers and the general public."

BHP Billiton has sought to play down concerns about the huge bargaining power, not least in the iron ore market, that a combined group would wield.

"This is a customer-friendly combination," BHP chief executive Marius Kloppers said last week. "The net benefit to our customers will be more production, more quickly and at lower costs."

Kloppers said the driving force behind his company's proposal -- which has been rebuffed by Rio Tinto -- was the potential to generate some US$3.7 billion in savings and efficiencies, rather than an opportunistic move to exploit high prices.

The steel industry, which depends on the miners for iron ore, has itself been consolidating, but the IISI argues that even the world's largest steel maker, Arcelor-Mittal, accounts for less than 15 percent of world production. The rest of the industry remains fragmented, with Arcelor-Mittal's closest rivals having only about a third of its production capacity.

"In sharp contrast, the business of seaborne iron ore [international trading] is dominated by just three companies. CVRD, Rio Tinto and BHP Billiton account for over 70 percent of total worldwide trade. Any further consolidation between the big three would create a virtual monopoly in the business," Christmas said.

IISI has a growing Chinese membership and Chinese authorities have signaled their intention not to be sidelined in the merger debate, with a state-owned bank taking a 1 percent stake in Rio Tinto.

The size of the two companies means any bid will be pored over by regulators round the world though if BHP does make a formal offer it will have marshalled arguments to address the concerns.

Kloppers was to meet yesterday with South Korea's two biggest steelmakers to call for support for the proposed merger.

He was expected to meet with Lee Ku-taek, chief executive of South Korea's largest steelmaker Posco, company spokeswoman Ko Min-jin said.

He was also to meet Hyundai Steel Co chief executive Park Seung-ha, Hyundai Steel spokesman K.T. Park said.

Samantha Evans, a spokeswoman for BHP Billiton in Melbourne, confirmed that Kloppers is visiting customers in Japan, South Korea and China this week but declined to give further details.

Kloppers was also expected to discuss an expected rise in iron ore prices next year, South Korea's Maeil Business Newspaper reported yesterday on its Web site, without citing a source.

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