REGULATOR SEEKS MORE SUBMISSIONS ON RIO, BHP VENTURE
Australia's competition regulator, reviewing BHP Billiton Limited and Rio Tinto Group's iron ore joint venture, is examining the possibility that the venture may influence the supply of the raw material used to make steel.
'Preliminary market inquiries indicate that the proposed joint venture may raise competition concerns in relation to the global seaborne' and Australian markets, the Australian Competition and Consumer Commission said in a statement on Thursday on its Website.
Bloomberg reported that BHP and Rio, the world's second- and third-largest iron ore exporters, plan to combine mines, rail, ports and workforces in Western Australia's Pilbara region into a 50-50 joint venture to save at least $10bn. The deal needs approval from regulators in Europe, Japan and Australia.
The commission will study whether the venture, together with Vale SA, the world's biggest iron ore producer, will have an increased ability to coordinate their supply decisions, the statement said.
The regulator asked for further submissions by April 14 and will announce its findings on April 28. BlueScope Steel Limited., Australia's largest steelmaker, has raised concerns about the joint venture, it said.
London-based Rio rose 1.8 per cent to close at A$78.62 in Sydney trading. Melbourne-based BHP was little changed at A$43.32.
BHP, the world's largest-mining company, wants to have shorter-term contracts linked to an index for pricing of iron ore. Rio said on Wednesday, that the traditional annual benchmark price system is 'broken' and it would accept quarterly-priced contracts.
'Some market participants also argued that the joint venture will be able to more profitably manipulate the supply/demand balance under an index pricing system compared with a benchmark pricing system,' the regulator said. 'That is, the joint venture can more profitably withhold production as the feedback in terms of increased prices is more immediate under the index pricing system.'
The deal will curb competition and development of mining capacity, steel industry group Eurofer, representing producers including ArcelorMittal and ThyssenKrupp AG, said November 16.
The venture should be blocked, the World Steel Association, which represents a group including 19 of the biggest steelmakers, said in October.
The plan is the second attempt to combine both mining companies' iron ore operations in Western Australia. BHP abandoned a hostile bid for Rio in November 2008, citing Rio's debt, falling commodity prices and regulatory hurdles.
The bid faced a probe from the European Commission, which had 'serious doubts' over a combination that would control more than a third of global iron ore exports.