By Rebecca Keenan and Brett Foley
Jan. 26 (Bloomberg) -- BHP Billiton Ltd. and Rio Tinto Group face a European Union investigation into whether their Australian iron-ore joint venture curbs competition.
Regulators will probe whether the deal between the world’s second- and third-largest iron-ore producers is a restrictive business agreement, the European Commission, the EU antitrust authority in Brussels, said in a statement yesterday. It didn’t give a deadline to complete the investigation.
BHP and Rio say the 50-50 venture, combining mines, rail, ports and workforces in Western Australia’s Pilbara region, will save them at least $10 billion. The agreement will also concentrate power in the market for the steelmaking ingredient and result in higher prices for customers, steel industry group Eurofer, representing producers including ArcelorMittal and ThyssenKrupp AG, said in a statement.
“We expect them to get it approved despite the opposition,” said Tony Robson, a Toronto-based analyst at BMO Capital Markets. “Given that BHP and Rio Tinto have canned plans to jointly market a fraction of their output and given that we also see rising production from others globally, then it looks in part that the potential is the other way around. The market is actually fragmenting.”
BHP and Rio Tinto, amid pressure from steelmakers, in October scrapped a plan to jointly market as much as 15 percent of ore from their planned venture.
The companies said on Dec. 5 that they expected to complete the deal by the end of 2010. The venture will also be reviewed by the Australian Competition and Consumer Commission, as well as antitrust authorities in Japan and Germany.
Second Attempt
“It’s impossible to put specific timing on how long this investigation will take,” commission spokesman Jonathan Todd told reporters in Brussels yesterday. “The commission will try to complete the investigation as quickly as possible.”
The proposed venture is the second attempt to combine the mining companies’ iron-ore operations in Western Australia. Melbourne-based 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 commission, which had “serious doubts” over a combination that would control more than a third of global iron-ore exports.
“The Japanese steel industry continues to view the establishment of the JV as a move that would restrict competition just as last year’s proposed acquisition of Rio Tinto by BHP Billiton would have,” Shoji Muneoka, chairman of the Japan Iron & Steel Federation, said in a Dec. 7 statement on the group’s Web site.
Steelmakers Contend
Brazil’s Vale SA, the largest iron-ore producer, BHP and Rio account for 68.5 percent of iron ore shipped by sea, according to the Brussels-based World Steel Association.
“If the planned merger is approved, mining companies will likely have more influence on pricing,” said Yoshiyuki Takano, a Tokyo-based analyst at Tokai Tokyo Securities Co. “Steelmakers would need to strengthen partnerships to contend with miners.”
The EU investigation will probe “the effects of the proposed joint venture on the worldwide market for iron ore transported by sea,” it said in the statement.
“This is very much a production joint venture only, between ourselves and BHP Billiton which will enable us to deliver more iron ore to the market, faster and at lower costs,” Rio spokesman Nick Cobban said by phone yesterday. “It won’t affect pricing as pricing will continue to be decided by the market as a whole with both ourselves and BHP competing.”
Iron Ore Prices
Iron ore for immediate delivery into China surged to $131.20 a metric ton on Jan. 8, the highest in at least 13 months, according to data compiled by The Steel Index, a venture of Steel Business Briefing Ltd.
Producers may benefit from a 31 percent jump in contract prices in the year starting April 1 to the second-highest level on record, according to the mean estimate of 17 analysts surveyed by Bloomberg. Nomura Holdings Inc. and Bank of America Merrill Lynch see gains of as much as 50 percent.
“We will continue to work with the European Commission and aim to convince them of the benefits for the venture and why it will not raise competition concerns,” BHP’s London-based spokesman Ruban Yogarajah said by phone.
To contact the reporters on this story: Brett Foley in London at bfoley8@bloomberg.net; Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net
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