BHP and Rio Tinto Scrap Iron Ore Joint Venture

- October 18th, 2010

Iron ore prices held steady on Monday, with the benchmark index holding close to a five month high. In the near term, prices may gain extra momentum due to China’s nationwide power rationing policy.

By Leia Michele Toovey- Exclusive to Iron Investing News

Iron ore prices held steady on Monday, with the benchmark index holding close to a five month high. In the near term, prices may gain extra momentum due to China’s nationwide power rationing policy. China quietly embarked on a nationwide power-rationing policy this past September, with no end date set. This has prompted the nations steel companies to raise prices.
Baosteel Group Co  set a price of 150 Yuan ($22.49) to 300 Yuan a tonne for crude steel selling in October. The price of other products including hot rolls, cold rolls and hot-galvanize rose between 100 and 350 Yuan a tonne. Analysts say it is hard to predict how hard the impact will be because there is no end date set for the power rationing.

On Monday, BHP Billiton (NYSE: BHP) and Rio Tinto (NYSE: RTP) announced that they would pull the plug on their plans to form a $116 billion iron ore joint venture. The two firms have been working on the joint venture for over eight months; however, government pressure has caused the firms to cancel their plans.  The venture had, from the get-go, faced intense opposition from steelmakers, anti-trust authorities and some investors. Regulators in Australia, the European Commission, the Australian Competition and Consumer Commission, the Japan Fair Trade Commission, the Korea Fair Trade Commission and the German Federal Cartel Office had all advised Rio and BHP that their proposed venture would not be approved in its current form. The collapse of the deal had been widely anticipated by the markets, and therefore reaction of share prices on Monday was relatively muted.

Vale, which plans on becoming the biggest mining company in the world, will not be seeking acquisitions of iron-ore miners to achieve its goal. Vale, the world’s biggest iron- ore miner, said it already owns enough assets to double its capacity, after quietly buying assets through 2004 and 2006. Chief Executive Officer Roger Agnelli told investors today in New York. “Everybody is looking for assets, they are going after acquisitions and we are not going after acquisitions.”

With help from Assistant Editor Vivien Diniz

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