Asian authorities could veto BHP-Rio alliance

The mining giants were expected to have a difficult task to obtain approval from Australian and European
regulators keen to maximise competition.

While Chinese steelmakers, which account for the bulk of the Pilbara's iron ore volumes, were expected to object to two of their biggest suppliers merging their assets, it was felt that China would be largely powerless to stop the move.

Chinese steelmakers have maintained collective bargaining arrangements that have ensured upward pressure on iron ore benchmark prices.

However, it appears that steelmakers are confident that new regulatory powers in China give authorities there the ability to intervene.

BHP and Rio announced last week that they would jointly operate their Pilbara iron ore export assets --
collectively about 260m tonnes a year – in a deal to be finalised next year.

Japan's Fair Trade Commission is reportedly to examine if the plan breaches its anti-trust laws, as some of the Pilbara's biggest customers are Japanese steelmakers that claim the deal creates an oligolarchy.

About 60% of Japan's iron ore imports are from Rio Tinto and BHP Billiton.

Chinese officials warn that China could impose "trade sanctions" on BHP and Rio if the deal goes ahead.

China had hoped to bring itself closer to Rio through government-owned Chinalco's investment in Rio.

But negotiations on the almost $20bn deal collapsed last week, prompting its agreement with BHP and leaving Chinese steelmakers facing the possibility of losing bargaining power.

An official told Chinese media its anti-trust laws gave it power to veto the merger.