Mainland steelmakers may need to reconsider a bid for cheaper iron ore prices following a tie-up between Rio Tinto and BHP Billiton that is set to further weaken their bargaining power. Rio and BHP, the world's second- and third-largest iron ore producers, yesterday reached a non-binding agreement to set up a 50-50 joint venture covering their Western Australian operations that is expected to save the firms at least US$10 billion. BHP will pay Rio US$5.8 billion under the deal. The joint venture will leave China, the world's biggest steel producing country, vulnerable to just two suppliers - a Rio-BHP joint venture and Brazil's Vale, which together control about 75 per cent of global seaborne iron ore trade. 'The deal between the two rivals is a blow to steel mills all over the world, not only China,' said Xu Xiangchun, chief information officer at Beijing Ganglian Maidi E-Commerce, a steel data provider. The tie-up will increase Rio and BHP's pricing power by controlling output, further cutting competition among miners in the long term, Mr Xu said. The news comes as mainland steelmakers ask for a bigger discount on this year's iron ore prices. Japanese and Korean rivals accepted a 33 per cent cut in prices of iron ore fines from Rio last week. 'The hope for a bigger discount now becomes even more unlikely,' Mr Xu said. He said mainland steelmakers would try to search for more suppliers other than the 'Big Three'. Rio chief executive Tom Albanese said the joint venture would not change the market supply or pricing strategy, as Rio and BHP would sell iron ore independently. 'The two companies have two different views on the market,' Mr Albanese said. 'There are still two major Australia producers.' The joint venture will deliver iron ore in equal volumes to ships designated by Rio and BHP and will be sold independently through their own marketing groups. BHP chief executive Marius Kloppers said the company would continue to seek a change of the annual benchmark pricing system for iron ore by using price indexing to better reflect market fundamentals.