Of all the activities in which global mining companies BHP Billiton and Rio Tinto are involved, the Australian Competition and Consumer Commission (ACCC) has identified future global supply of iron ore lump and iron ore fines as a possible issue that may raise competition concerns, in relation to the proposed acquisition of Rio Tinto by BHP Billiton.
The ACCC's iron ore market inquiries have indicated that the proposed acquisition may lessen competition in the global seaborne supply of iron ore and, therefore, would be likely to lead to an increase in global iron ore prices.
In addition, due to their highly similar operations in terms of the quality of deposits, scale, cost base and distance to key customers, BHP Billiton and Rio Tinto are considered as competitors, and their merger may have a direct impact on the outcome of annual seaborne iron ore price negotiations and, thereby, may influence prices of iron ore lump and iron ore fines, including those in Australia. Moreover, the merger will reduce the availability of supply options to the Australian steelmakers and may enable the domestic producers of iron ore to increase prices by more than any increase in global iron ore prices.
While iron ore activity has increased under rising global demand and high prices for iron ore, it is still unsure if new companies in the iron ore market will be able to provide effective competition in terms of large, low-cost incumbent supplies.
Moreover, interested parties have expressed their concerns that the proposed merger will reduce the number of alternative suppliers in seaborne supplies. In particular, Vale would be the only other supplier involved in annual benchmark price negotiations.
Furthermore, the ACCC raised its concern over the possible influence on the volume of global supply by the companies in question in the event of a merger. The merger firm could profitably time future production and infrastructure capacity expansions so as to maintain a global shortfall of supply, while steelmakers in Australia and overseas could face significantly higher prices for iron ore than BHP Billiton and Rio Tinto would achieve in the absence of the proposed acquisition.
In light of all these concerns, the ACCC required further information from the interested parties to determine whether the proposed acquisition is likely to result in substantial lessening of competition in supplies of iron ore lump and iron ore fines. The ACCC anticipated completing further market inquires by September 5 and making a final decision by October 1.