Marius Kloppers, BHP Billiton’s chief executive, moved into overdrive this week in efforts to soothe the company’s biggest and most important customers, Asia’s steelmakers, about its $125bn takeover bid for Rio Tinto
After meetings in Japan and South Korea, Kloppers has taken his regional charm offensive to China – the world’s biggest producer and consumer of steel, with a message of assurance to the big Chinese steelmakers that BHP would never, ever, use the combined clout of a BHP-Rio to control prices.
Chu Jiandong, vice general manger of Tangshan Iron & Steel Group Co Ltd, said steel executives who met Kloppers in Shanghai on Wednesday reiterated their concern to him that an enlarged BHP could exercise monopoly power over ore prices, reports Reuters.
BHP and Rio together account for just under two-fifths of China’s imports of the commodity, the main feedstock for steel. Together, the companies would account for more than a third of global iron-ore trade.
But Chu said China’s big firms also saw a silver lining in the proposed takeover, which Rio has rejected as too low: “We have reached consensus that the possible merger could help lead to lower costs and increased production of iron ore as well as to more long-term contracts between both sides,” he told Reuters.
Chu, whose company is China’s second-biggest steel maker, seems to have taken on board Kloppers’ message that a BHP-Rio combination would be able to dig out and deliver more ore together than they could separately.
Kloppers also met representatives of the industry leader, Baoshan Iron and Steel Co (Baosteel) and of other leading steel mills on Wednesday. And on Thursday, he was due to pay calls on the National Development and Reform Commission – China’s main planning agency – as well as the Ministry of Commerce and the China Iron and Steel Association.
Iron-ore prices have tripled in the past five years on increased Chinese demand and may rise by 50 per cent next year, according to Bloomberg, which cites estimates from Macquarie Group. Kloppers is touring Asian customers this week to win the support of steelmakers, many of which have said they want regulators to block BHP’s bid for Rio.
The merger would “definitely put Chinese steelmakers in a weaker position in iron ore talks”,’ Fu Hao, who helps manage $500m at E-Fund Asset Management in Guangzhou, told Bloomberg.
If we’re on the subject of big iron ore buyers, it is worth noting that conspicuously silent so far has been Lakshmi Mittal, chief executive and main owner of the world’s biggest single steelmaker, ArcelorMittal – and now, the first foreign investor to take a controlling stake in a Chinese steel concern, according to the FT on Thursday.
The Luxembourg-based company has built a 73 per cent stake in China Oriental Group, according to Hong Kong stock exchange documents. On the basis that Arcelor is believed to value the company at about $2.3bn, its stake is worth roughly $1.7bn.
China Oriental’s main asset is a mid-sized steel mill in the north of the country that produces 4m tonnes a year. It is unique among Chinese steelmakers for being both privately owned and listed outside the mainland.
Given Mittal’s well-known ambition to secure a large and firm foothold in China, Kloppers could do worse than take his Chinese charm offensive to Mittal’s headquarters in London.