ASIA Fear and trembling over BHP’s consolidation play

Jan 01, 2008 | 01:05 PM |

Just what did Marius Kloppers, BHP Billiton's chief executive officer, tell customers during his tour of Asia in November? On his return to Australia, he said that he had discussed their "concerns" about uniting BHP Billiton and Rio Tinto and would continue to do so.

If he succeeds in persuading any of them that his audacious proposal is good news, he will deserve a new job explaining the benefits of Christmas to turkeys.

Steelmakers the world over are profoundly nervous about BHP's proposal, which would leave the iron ore market dominated by just two companies one Anglo-Australian, and the other, Vale, Brazilian.

The European Confederation of Iron and Steel Industries (Eurofer), the increasingly vociferous lobby group, says it will fight the proposed merger even though Australian iron ore accounts for a tiny percentage of supplies to the European Union.

But it is Asian customers who have the most to fear, as they are the most reliant on Australian iron ore. Australia's share of the Japanese, South Korean and Taiwanese iron ore import market is about 60 percent; in China, it is about 40 percent. Japanese and Korean steelmakers have publicly aired their concerns, but it is the Chinese, whose booming steel industry has inflamed iron ore prices over the last five years, who are most worried, though less demonstratively. In the weeks following the announcement of BHP's takeover bid, there were only muted statements of concern out of Beijing.....