The $7.2 billion iron ore joint venture between Rio Tinto and BHP Billiton has been met with derision from Chinese steel makers.
The country holds fears of a single entity moving towards a dominant position in the iron ore production market.
China’s leading steel negotiator, China Iron & Steel Association (CISA) has released a statement slamming the merger.
“The joint venture agreement has a strong monopolistic colour and Chinese steel mills will resolutely oppose the agreement,” CISA said in its statement.
Nearly half of China’s iron ore is imported, and half of that is imported from Australia.
Rio’s decision to withdraw from its US$19.5 billion deal with Chinalco has also been met with anger in China.
“Chinalco and Rio Tinto had reached a cooperative agreement which had injected the vigour of economic cooperation between China and Australia,” China’s Government spokesman Qin Gang told a Foreign Ministry press conference this week.
“The purpose and principle were mutually beneficial.
“Now the decision made by Rio Tinto, I believe, has not only very much disappointed the related Chinese company but has caused strong reactions from the iron and steel industry and also the general public in China.”
But any criticism from China of the proposed joint venture between Rio and BHP is unlikely to affect the deal, Fat Prophets mining and resources research Gavin Wendt told MINING DAILY.
“I don’t think any criticism from any steel producer is going to have an impact on what BHP and Rio are going to do,” he said.
“They can see benefits for their shareholders and I don’t know that there is a lot that these steel groups can actually do about it.”
According to Wendt, regardless of Rio and BHP suggesting that the savings the joint venture will bring may flow on to the customer, the most likely outcome is it flowing back to the companies.
“If they have managed to drive down costs then that is likely to go straight to the bottom line,” he said.
A potential lasting affect from the collapse of the Rio-Chinalco deal and the new joint venture could be a fractured relationship between China and Australia, Wendt said.
“The Chinese thought they had a deal and they have been left at the altar,” he said.
“That is why Chinalco is miffed and I think the Chinese have very long memories.”
Recent media reports coming from China would seem to back Wendt’s suggestion.
According to Chinese media outlet, Xinhua, the decision by Rio to back out of the Chinalco deal in favour of a merger with BHP was driven by bad business sense and political discrimination.
“The perfidy of Rio, the world’s third largest mining company, seems somewhere between short-sightedness and possible political prejudice,” Xinhua wrote.