15 Oct 2009 14:08

Changes to Rio, BHP JV fail to ease Chinese steel mills' concerns

Shanghai. October 15. INTERFAX-CHINA - Chinese steel mills will remain strongly opposed to Australian miners Rio Tinto and BHP Billiton's endeavor to set up an iron ore joint venture in Western Australia, regardless of recently announced changes to the cooperation agreement, an analyst told Interfax on Oct. 15.

"The joint venture will still be considered monopolistic by Chinese steel mills, as it will control major supply volumes of iron ore imports to China," Yu Liangui, an analyst from Mysteel Information, told Interfax.

According to Rio's announcement on Oct. 15, the two Australian miners have decided against a joint marketing strategy for iron ore produced at the joint venture. All output from the proposed joint venture will be sold separately by Rio and BHP. Previously, the two miners agreed to jointly sell 15 percent of the project's annual production."The change in marketing strategy will have little impact on supply, as a large proportion of the two miners' iron ore output will be controlled by the joint venture," Yu added.

However, an industry insider, who asked to remain unnamed, told Interfax that Chinese steel mills will not worry too much about the establishment of the joint venture, as China is currently the world's biggest iron ore purchaser and the global economic downturn has created a buyer's market for iron ore. This means that collectively Chinese steel mills will have more bargaining power than the proposed joint venture when it comes to settling global iron ore prices.

The joint venture will encompass both Rio Tinto and BHP's entire iron ore assets in Western Australia.