BHP Billiton Ltd told Chinese steelmakers, the biggest buyers of iron ore, that it will refrain from using a potential US$125 billion takeover of Rio Tinto Group to control prices, according to a Chinese executive.
Marius Kloppers, the chief executive officer of the world's largest mining company, on Wednesday met executives of Jiangsu Shagang Group Co, Wuhan Iron & Steel Group and Magang (Group) Holdings Co in Shanghai, said Shagang chairman Shen Wenrong.
"We told them we want to see reasonable iron ore prices after the merger," Shen said in an interview on Wednesday. "They said the prices will continue to be decided by the market."
Iron-ore prices have tripled in the past five years on increased Chinese demand and may rise by 50 percent next year, Macquarie Group Ltd said last month. Kloppers is touring Asian customers this week to win the support of steelmakers, which want regulators to block Melbourne-based BHP's bid to create a company that would account for more than a third of global iron-ore trade.
The combined company would rival Brazil's Cia Vale do Rio Doce, the largest producer. Iron ore could be in short supply globally until 2015, Merrill Lynch & Co said on Oct. 29.
"The merger will definitely put Chinese steelmakers in a weaker position in iron ore talks," Fu Hao, who helps manage US$500 million at E-Fund Asset Management Co, said in Guangzhou. "There are more and more buyers of iron ore, but only two major suppliers after the merger."
BHP fell A$0.61, or 1.5 percent, to A$40.44 at the 4:10pm close Sydney time. Rio fell 1.6 percent to A$128.77.
Kloppers, who visited Japan and South Korea earlier this week, is in Beijing and will meet officials from the China Iron and Steel Association today. He visited Baosteel Group Corp, China's largest steelmaker, in Shanghai on Wednesday and declined to speak with reporters outside the office.
Japan's JFE Holdings Inc, South Korea's Posco, the International Iron & Steel Institute, the China Iron and Steel Association and the European Confederation of Iron and Steel Industries this week all voiced opposition to the proposal.
"BHP is trying to take care of concerns from the steel industry, especially from China, about the monopoly issues from the possible merger with Rio," Zhu Limin, an analyst with Shanghai Securities Co, said by phone. "The fact is BHP/Rio will have bigger bargaining power after the merger. Iron ore prices will no doubt stand at high levels."
Kloppers wants annual iron-ore rates to be based on cash prices, which have surged to fivefold the 2007 contract prices. Global contract prices are set each year after talks between major steelmakers and miners, and that format should be kept, Chen Xianwen, China Iron and Steel Association's deputy director of market research, said Oct. 31.
"In my view, BHP and Rio have had an alliance in pricing iron ore for a long time," Shen said. "We haven't had, and are unlikely to have, any benefits even if they don't plan to merge."