Baosteel mulls leading fight against BHP for Rio Tinto

PUBLISHED : Wednesday, 05 December, 2007, 12:00am
UPDATED : Wednesday, 05 December, 2007, 12:00am


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Takeover battle looms amid unease over iron ore prices

Shanghai Baosteel Group Corp is considering leading other mainland steelmakers into the takeover battle for Rio Tinto, fearing a successful bid by BHP Billiton will create a powerful global cartel capable of controlling iron ore prices.

Xu Lejiang, the chairman of Baosteel, told state media that the country's biggest steelmaker was weighing a bid that could well exceed BHP's US$134 billion offer for Rio.

'We are considering it,' 21st Century Business Herald yesterday quoted Mr Xu as saying. 'There is a strong possibility that we will make a bid.'

The move by Baosteel, the first mainland steelmaker to confirm its intentions, reveals growing unease that a BHP-Rio combination will dictate higher prices to the mainland, the largest buyer of iron ore.

Industry analysts expect iron ore contract prices could surge by up to 50 per cent next year, largely fuelled by the country's insatiable appetite for the steel-making ingredient. Prices have doubled since 2005.

Mr Xu said having its own mines was critical to Baosteel as it imported all its iron ore. He said a price tag of US$200 billion for Rio was 'probably not enough'.

Last month, the Beijing-based China Business newspaper reported that China Investment Corp, the newly established state investment fund, was planning to join Baosteel and other steel companies in bidding for Rio. CIC denied the report.

Analysts said it was very likely that Beijing would support the bid.

'A few of the biggest steelmakers in China and the central government may team up for a bid,' Chen Hanyu, a director at steelmaker Shougang Corp, told Bloomberg. 'It's being discussed by top officials.'

Helen Wang, an analyst at DBS Vickers, said Beijing was encouraging domestic companies to invest in overseas energy and mineral resources to ensure a secure supply for the nation's growing economy.

Mainland companies had sufficient financial strength to launch the bid but it would not be easy because of political factors, she said.

CNOOC failed to buy Unocal Corp in 2005 because of opposition from United States politicians concerned about the energy company falling into foreign hands.

BHP, the world's largest mining company, is proposing to buy Rio in a three-for-one stock offer, which could give it control of almost half of Asia's trade in iron ore. A successful takeover means steelmakers will face tougher price negotiations.

China imported 325 million tonnes of ore last year, accounting for almost 50 per cent of the global trade in the commodity. The country's steel industry as a whole needs to import half of the iron ore it consumes.

'Iron ore is scarce in China,' said Bai Fang, a spokesman at Wuhan Iron & Steel Group, which imports 80 per cent of its iron ore.

He said he did not know whether his firm would join the bid for Rio.

Fu Jihui, an executive director at Hong Kong-listed Angang Steel, said the company would not take part in the bid as most of its iron ore was bought from its parent firm.