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The potential tie-up between mining majors BHP Billiton and Rio Tinto would be problematic to China’s bargaining power for the supply and price of iron ore, a source familiar with China’s State Council told mergermarket.
The source said that the potential deal between BHP and Rio Tinto would be ”no good to China”, whose rapid infrastructure growth is highly dependant on iron ore for steel production. The source explained that the deal would lead to the world’s natural resource distribution being dominated.
He added that Chinese companies cannot influence the merger except by proposing a rival bid. On this front, the source said that the China Investment Company (CIC) and China Development Bank (CDB) are possible potential counter bidders for Rio Tinto.
He said the China Investment Company was designed to make equity investments in overseas countries and the most suitable targets are resources companies. He added that if either player decided to send a rival bid, approval from the China State Council would be required.
A source at CDB said the Rio Tinto/BHP deal is very sensitive and CDB had no comment on it.
A source close to Baosteel (a major, China-based steel player and negotiator of benchmark iron ore prices for China) said that there is a great concern that iron ore prices will rise by 50% next year. He also added that Baosteel will stand aside and keep a close eye on the progress of the deal. The Baosteel source said the company cared a lot about what kind of influence the deal would have on the supply and price of iron ore. ”If the deal can ensure iron ore supply and keep the price stable, that will be fine.”
When asked if Baosteel would be interested in iron ore-related assets, should any be sold for regulatory reasons, the Baosteel source said: ”I don’t know how to answer this question. But if Baosteel has iron ore resources, it will be much better for the company.”
A source close to Sinosteel, another China-based steel company, said that it also would show interest in iron ore assets which could come up for sale through regulatory pressure from a BHP/Rio Tinto deal. The spokesperson for Sinosteel was not available to comment. Sinosteel is historically active in buying iron ore assets overseas.
A source on the BHP/Rio Tinto deal said only that there are a lot of possibilities and that there will be a lot of companies watching the deal closely, especially the Chinese.
A deal source close to the Rio camp, speaking yesterday, said that if a rival were to emerge for Rio Tinto, the Chinese state is likely to be the strongest bidder.
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