Top Biz News
BHP and Rio Tinto's merger spurs Chinese companies
By Hao Yan (chinadaily.com.cn)
Updated: 2009-12-08 17:34
The merger between BHP and Rio Tinto is expected to push the iron ore price higher and accelerate integrations in Chinese iron and steel industry next year, insiders and analysts said.
BHP and Rio Tinto, two of the world's top three iron ore suppliers, signed a binding agreement covering the operation and management in their future joint venture on Dec 5 with the companies saying they will complete the merger in the second half of 2010.
Chinese industry insiders said the merger is conveying severe price pressure to domestic iron and steel companies. Chinese companies have to concentrate and strengthen the bargaining power in price negotiations by integrating numerous smaller companies into several big strong players. Chinese industry has been considering the integrations, but must speed up.
"We will see lenders' stronger loan support to iron and steel industry to fuel mergers and buyouts next year," said an industry analyst Su Lifeng, from Guoyuan Securieties.
The joint venture will operate all the current iron ore in West Australia and the resources explored in future as well as the debts. Shanghai Securities News reported that BHP and Rio Tinto, holding 50 percent stakes each in the JV, has submitted a document to Australian Competition & Consumer Commission. BHP and Rio Tinto expected the JV will "realize the objectives that to boost iron ore output while cutting the costs," and generate magnificent synergies worth of a $10 billion cash value.
The two giant iron ore suppliers have an over 30 percent market share in total on the global iron ore market, and the merger makes a stronger monopoly.
