BHP Billiton's bid for Rio Tinto stirs fears of iron ore monopoly

Some of the largest steel makers in Asia are voicing opposition to BHP Billiton's proposed takeover of Rio Tinto Group, asserting that such a takeover would create a "monopoly" in the iron ore trade.

The concerns come as BHP's chief executive, Marius Kloppers, travels the region seeking support for the proposal.

Posco, the South Korean steel maker, said Tuesday that a BHP-Rio combination would increase concentration in raw material supplies.

"We are concerned about it and we think it's not desirable," said Kwon Young Tae, executive vice president in charge of Posco's raw materials department.

The China Iron & Steel Association has also voiced objections to the proposed deal, publishing a statement on its Web site that said the merger would create a monopoly.
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The world's three biggest iron ore producers - BHP, Rio Tinto and the Brazilian mining company CVRD, or Companhia Vale do Rio Doce - account for more than 75 percent of all global iron ore trade, the statement said.

"We do not want to see this merger create an even bigger monopoly," it said, adding that as the world's biggest steel producer, China had the most to lose, and that it relied on imports from Australia for 38 percent of its iron ore. "This is not a good thing."

BHP is pursuing the bid after an offer of three of its own shares for each one of Rio's stock was rejected.

Combining BHP, the world's biggest mining company, with Rio would create a group with 38 percent of the world's seaborne iron ore trade, according to Australia & New Zealand Banking Group. CVRD has a similar share.

Kloppers has said that the proposed combination of BHP and Rio would allow the new company to produce more iron ore at a lower cost.

The proposed union is "a powerful proposition for customers," he said.

Still, Hajime Bada, president of the steel division at Japan's JFE Holdings, said Monday that the would-be merger "will be harmful to the fair trade of iron ore and high-grade coking coal."

The International Iron & Steel Institute, whose members include 19 of the world's 20 biggest steel makers, said on its Web site that the competition authorities should block the planned takeover.

Iron ore prices have tripled in the past five years on increased Chinese demand. Next year, contract prices for the commodity may rise by 50 percent, Macquarie Group estimated last month.

Kloppers met Tuesday with Posco's chief executive, Lee Ku Taek.

"We think this is a good proposal for shareholders and customers, but we have a lot of work to go through," Kloppers said before the meeting.

Kloppers said a merger could mean $3.7 billion in annual savings after seven years through synergies in iron ore, coal and other activities.

"We think the overlap of the operations, the fact that we have a solution on how to put the companies together, and the benefits is a very good proposition," he said Tuesday.