China’s iron and steel industry looks set for mergers and integrations next year, as the sector gets ready to build its bargaining power to take on BHP Billiton and Rio Tinto.
A planned $US116 billion ($128.3 billion) joint venture of the Pilbara iron ore assets owned by BHP Billiton and Rio Tinto has upset many customers, including those in China.
The mining giants signed a binding contract for the merger of their iron ore operations on Saturday, expected to create $US10 billion in synergies for the companies.
But China’s official China Daily News said today that the move was conveying ‘‘severe price pressure to domestic iron and steel companies’’ and plans were made to respond.
‘‘Chinese companies have to concentrate and strengthen the bargaining power in price negotiations by integrating numerous smaller companies into several big strong players,’’ the news organisation said on its website.
‘‘Chinese industry has been considering the integrations, but must speed up.
‘‘The two giant iron ore suppliers have an over 30 per cent market share in total on the global iron ore market, and the merger makes a stronger monopoly,’’ it said.
In benchmark price negotiations for iron ore this year, Chinese steel companies were represented largely by the China Iron and Steel Industry (CISA), which demanded a better deal than competitors elsewhere.
But CISA came under criticism after its demands were rebuffed by iron ore sellers, and many Chinese companies were left paying spot prices, which were higher than benchmark prices.
The joint venture between BHP Billiton and Rio Tinto still must clear regulatory hurdles, including from European and Chinese regulators.
Source: Sydney Morning Herald
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