China steels for a showdown

HONG KONG - China, a growing and often welcome presence in the international financial world, appears ready to give another display of its impotence in global corporate matters as the country's steel industry joins in annual price talks with newly muscled-up iron ore suppliers.

The China Iron and Steel Association is seeking a 40% to 50% cut in iron ore prices compared with last year's contracts, which expire on June 30. The industry body represents steelmakers whose profits have been squeezed by overcapacity and a collapse in demand since the onset of the financial crisis last year. Prices of iron ore, their key raw material, have quadrupled since 2004.

Across the negotiating table are Australian miners Rio Tinto and BHP Billiton, the world's second- and third-largest iron-ore producers, which together sell more than US$20 billion of ore to the Chinese.

This month, the two companies reached a non-binding agreement to set up a 50-50 joint venture covering their vast West Australian iron ore operations. The tieup could lead to US$10 billion in savings, Rio said. China, heavily reliant on imported iron ore, says the pact will give the two miners unfair pricing power over steel buyers. The proposed joint venture would control combined iron ore output of 270 million tonnes a year, almost equal to the 340 million tonne annual output of top producer Brazilian miner Vale. Rio and BHP control about 70% of seaborne iron ore trade, according to Mining Weekly.

The Rio-BHP deal has an "obvious color of monopoly" and is expected to have a major impact on China's steel industry, a Chinese Ministry of Commerce spokesman said.

The government in Beijing is considering wielding its new anti-monopoly law, which came into effect last August, to kill the agreement. Under the legislation, all business mergers must file for review if their joint revenue exceeds 10 billion yuan (US$1.46 billion) globally or 2 billion yuan in China, and if two or more of the firms each have more than 400 million yuan of revenue in China the previous year.

Both Australian companies fall comfortably into the net - BHP gulped up US$11.7 billion in China sales in the year ending last June 30, and Rio $10.8 billion, according to the Commerce Ministry spokesman.

The new law should apply to the Rio-BHP pact, Chen Yanhai, head of the raw material division at the Ministry of Industry and Information Technology, told Xinhua News Agency on June 16.

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