CHINESE steelmakers, the largest buyers of iron ore, and the government are studying a joint bid for Rio Tinto Group to counter a $134-billion offer from BHP Billiton.
“It’s an issue being discussed by top-level officials,” said Chen Hanyu, a director at the resources office of Beijing-based Shougang Corp, the nation’s ninth-largest steelmaker. Members of the China Iron and Steel Association have held talks, said vicechairman Qi Xiangdong.
If successful, the move may hit India’s already-declining iron ore exports, and bring in some drastic changes in the domestic steel industry. A senior analyst tracking the industry said in the international iron ore trade market, Indian iron ore producers are the only ones that deal in the spot market while the Australian and Brazilian firms are mainly in the contract market. “The proposed bid by the Chinese firms for Rio Tinto will hit Indian ore producers as 90% of iron-ore exports from India is going to China and a successful bid for Rio will enable that country to create a strong ore souring base,” he said. The steel mills want to block BHP’s offer because the deal would give the world’s biggest mining company control of almost half the Asian iron ore market. Rio shares closed lower in Sydney trading, reflecting doubt that China will proceed with an acquisition that would dwarf Cnooc Ltd’s failed $18.5-billion bid for Unocal, rejected by US lawmakers in 2005.
“There are clear strategic reasons why they would consider a bid,” Angus Gluskie, who helps manage the equivalent of $500 million at White Funds Management, including Rio and BHP shares, said in Sydney. Australia’s newly-elected Labor Party government may oppose such a transaction, he said. India, the second-largest supplier of iron ore to China for the last two years, has slipped to the third during the last nine months ended September. Brazil has overtaken India as the secondlargest supplier of iron ore to China while Australia retained its top position. India has exported around 60 million tonne (mt) of iron ore during nine months, accounting for 22% of China’s total imports, says China Metallurgical Enterprises Management Association. Baoshan Iron & Steel, the listed unit of China’s largest steelmaker, rose 77 yuan, or 5.2%, to 15.53 yuan at the 3 pm close in Shanghai. Rio, based in London and the world’s third-largest miner, fell 31 pence, or 0.6%, to 5,412 pence as of 9.16 am in London. Rio’s London shares are trading at an 11% premium to BHP’s proposal, indicating investors expect a higher offer. The premium has narrowed from as wide as 15% on November 12.
China has been scouring the world for resources. Aluminum Corp. of China bought Peru Copper for $860 million in August