With regard to Australian iron ore giants BHP Billiton and Rio Tinto's ongoing project to establish a joint venture covering the entirety of both companies' Western Australian iron ore assets, in a press release issued on November 16 on behalf of the European steel industry, the European Confederation of Iron and Steel Industries (EUROFER) has asked the European Commission (EC) to block the joint venture in question since it would result in higher prices in Europe.
"In a global market already dominated by an oligopoly with just three suppliers, Vale, Rio Tinto and BHP Billiton, and in which the price of iron ore already reached a historical high in 2008, a joint venture of Australian iron ore assets is fundamentally against the interests of the steel industry, European consumers and the European economy," EUROFER director general Gordon Moffat said in a written statement in response to the ongoing attempts of BHP Billiton to accomplish a joint venture with Rio Tinto.
"If allowed to proceed, the joint venture will restrict competition in relation to the fundamental competitive parameters in the seaborne iron ore markets: price, volume and quality," Mr. Moffat explained.
"Therefore, EUROFER has requested the Commission to exercise jurisdiction over this new transaction and carefully investigate its impact on free competition," added Mr. Moffat.
As per the EUROFER statement, through the joint venture, BHP Billiton and Rio Tinto will develop a joint view about the perceived demand and supply balance and will not constrain each other during benchmark negotiations where prices and volumes are fixed. They will have identical output available and full knowledge of each other's volume. Incentives for further iron ore capacity and infrastructure investment will be seriously constrained by the creation of the joint venture. The proposal to create this joint venture will have the same impact on the iron ore market as would have had the original full merger proposal comprehensively objected to by the Commission last year. There is no reason for the Commission to take a more positive view of this current joint venture proposal.
Following the announcement of the decision of the iron ore giants to establish this joint venture, in a press release issued on June 9 EUROFER called on the Commission to start an investigation, as SteelOrbis previously reported.
In mid-October, Rio Tinto and BHP Billiton jointly made an announcement to clarify the nature of the joint venture for customers, concerned that the combination of the world's second- and third-largest iron ore producers would result in higher prices for the key steelmaking input, and said that they agreed not to proceed with marketing output from their proposed iron ore joint venture, likely addressing the European Union, which is yet to announce what level of regulatory scrutiny it plans to apply to the deal.