Wednesday, November 26, 2008
Steelmakers worldwide cheer BHP/Rio bid collapse
Wednesday, 26 November 2008
Steel makers across the globe welcomed the collapse of BHP Billiton's $66 billion bid for rival Rio Tintothat had threatened to create an iron ore powerhouse with tight control over pricing. BHP's withdrawal of its hostile bid comes as the $800 billion steel industry is bracing for yet another tough round of price negotiations for the 2009 annual contracts for iron ore, one of the main ingredients in making steel, which are due to start soon. During the 2008 negotiations, when steel demand was booming, iron ore miners achieved an unprecedented price hike of up to 96.5 percent from steelmakers.
However, with the steel industry cutting output sharply and iron ore miners following them, some analysts are forecasting falls of up to 40 percent, a dramatic reversal after six years of hefty price rises.
"Clearly the steel industry is pleased since we had very grave concerns -- as did many other sectors -- about putting 70 percent of the world's seaborne iron-ore market in the hands of two global conglomerates," Nicholas Walters of the World Steel Association said.
The world's top three iron ore miners -- BHP and Rio plus top producer Vale of Brazil -- already control more than two-thirds of the global seaborne trade.
Steelmakers had long opposed the deal, fearing a possible combination of BHP and Rio could give the miners the upper hand in iron ore pricing.
Asked what European steel confederation Eurofer believed the reasons were for BHP dropping the bid, a spokesman said: "The statement of objection of the European Commission is certainly the main reason for that.
"The commission, it seems, would never allow a merger of this magnitude.
BHP cited sliding metals prices and the threat of global recession, saying the risk of taking on Rio's $39 billion net debt and the low prices it could expect from asset sales forced on it by EU regulators, were among the factors behind its decision.
The Eurofer spokesman added: "Now we can be sure that the market concentration is not going any further and this is an insurance that the prices will be less influenced than they could have with the merger."
Analyst David Tucker at industry consultants Hatch Beddows said: "There will be more parties on the table. Three is better than two, particularly when two of them do not set prices in the Atlantic. It is going to be better," he said.
Major steelmakers such as the world's largest ArcelorMittal and Europe's second biggest producer Corus, owned by India's Tata Steel declined to comment.
In Asia, the world's No. 2 mill Nippon Steel, No. 4 POSCO of South Korea and China's top maker Baosteel also kept silent, fearing they might touch a nerve at companies that they count on for about two-thirds of their iron ore.
Adapted from Reuters
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