Mainland steelmakers have been talking about taking over mining giant Rio Tinto. It is highly unlikely they will manage to put together a credible bid. And even if they do, the bid will fail.
Reports were swirling yesterday that a consortium of mainland steel companies led by Baosteel are planning a takeover bid for British-Australian mining behemoth Rio Tinto to counter an earlier bid from Rio's arch-rival BHP Billiton.
At first glance the mainland bid appears to make good sense. Mainland steel mills rely heavily on iron ore imports from mines in Australia owned by Rio and BHP. But as mainland demand for the metal has risen over recent years, so have the ore prices charged by the mining companies (see charts).
In 2005, for example, the miners jacked up contract prices by a hefty 71.5 per cent.
Next year, prices are widely expected to jump by between 25 and 50 per cent, 'with the increase closer to 50 per cent than 25 per cent', said industry expert Michael Komesaroff.
That will hurt the mainland's steelmakers who already are suffering from excess capacity.
Clearly they are worried that a merged BHP-Rio will force them to swallow even higher ore prices. On the other hand, if they can acquire Rio for themselves, not only will they guarantee a secure ore supply but they will be able to exert a far bigger influence on future price negotiations.