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Chinese Bid for Rio Tinto Could Top BHP's
Source: Business Week, December 5, 2007
In an interview with a Chinese newspaper, Xu Lejiang, the chairman of
Baosteel is much smaller than
Despite the financial muscle that Baosteel could bring to bear, market sources said yesterday that such a deal was unlikely given the price and the likely opposition of
The Rio Tinto chief executive, Tom Albanese, has said BHP's all-share offer is "ball-parks away" from Rio's fair value and has been talking up the company's prospects as an independent group, highlighting its expansion plans for its Pilbara iron ore mine in
Most analysts believe BHP will have to increase its offer to get a deal done.
A Rio-BHP combination would create one of the world's largest companies with a 27 per cent share of the iron ore market -- the basic material for steel -- as well as a top position for several other commodities.
If Baosteel were to bid, it would probably have to partner with another company or draw heavily on government funds. The state-owned enterprise would likely face political opposition in
Baosteel's motives, however, are similar to other steel producers who have begun buying up iron ore assets to shield them from rising prices. Since January, iron ore prices have risen by more than 70 per cent to reach nearly $200 per ton at delivery, said Mr Smith. That's up from a low of $18 per ton at the port of the country of origin five years ago.
ArcelorMittal, the world's largest steel producer, has been furiously signing deals around the globe in an effort to reach its stated goal of 75 per cent self-sufficiency -- it currently provides 45 per cent of its own ore. Baosteel is almost completely dependent on outside suppliers. The world's leading steel maker and miners are currently locked in talks to set the 2008 price for iron ore. Mr Smith is forecasting an increase of up to 50 per cent due to strong demand, mainly from