[中国视点]
牵一发动全身,铁矿石市场调整谨慎
China has a huge stake in the outcome of BHP Billiton's $131.57 billion unsolicited bid for Rio Tinto, but bankers and industry observers say it has few options for intervening.
A merged BHP-Rio Tinto would control more than one-quarter of the global supply of iron ore, a key raw material for Chinese steelmakers, products of which are supporting the building boom and rapid urbanization of the world's fastest-growing major economy.
According to data compiled by UBS AG, China will consume 59% of the world's iron-ore production, 40% of aluminum production and 29% of refined copper by 2012.
The possible deal 'definitely matters to the restructuring of ore resources. . . . We are highly concerned,' says Chen Ying, chief financial officer of Baoshan Iron & Steel Co., or Baosteel, China's biggest steelmaker in terms of capacity.
Competitors are worried, too. This week, Luo Jianchuan, the president of state-owned Aluminum Corp. of China Ltd., known as Chalco, expressed concern about a tie-up between the two mining companies.
'The impact of this on us is huge,' Mr. Luo said.
Increased market concentration from a BHP-Rio Tinto merger could give remaining iron-ore suppliers greater ability to establish a floor on prices, much as the Organization of Petroleum Exporting Countries has done to keep oil prices from falling below a certain level.
At the same time, like OPEC, miners don't want prices so high that they throw a wrench into the global economy and ultimately shrink demand. And while Australia-based BHP has told its investors that it doesn't expect China to oppose a takeover of U.K.-based Rio Tinto, BHP's chief executive, Marius Kloppers, is flying to Beijing next week, as well as to Japan and South Korea, as part of a campaign to reassure corporate buyers and government officials that the deal won't hurt their interests.
BHP argues a merged company would be able to deliver 10% more ore to China, and faster, from Australia than either can do now apart. That increased supply would help moderate prices, BHP says.
At any rate, the scenarios in which China can directly affect the outcome of this deal are limited, investment bankers and people in the industry say.
In a 'white knight' scenario, a group of companies would join forces to put forward a competing offer for Rio Tinto. China has many cash-rich companies in the mining, metals and energy sector -- such as Chalco, China Shenhua Energy Co. and Baosteel -- that could be formidable if they acted together.
But many of China's flagship companies are still small compared with global giants like BHP and Rio Tinto.
Already, Baosteel has said it isn't planning any moves.
'In the mining world, there aren't many big players from among Chinese corporations,' one investment banker says.
In theory, Chinese banks and the country's sovereign-wealth fund, which manages about $67 billion of the nation's foreign reserves allocated for overseas investments, could provide the financing.
Yet Chinese government entities are hesitant to leap into a politically charged transaction with an aggressive counteroffer.
Such a move could create ill will if other countries accuse China of trying to grab key resources.
Policy lender China Development Bank, which owns a stake in Barclays PLC and has funded Chinese state companies' plans to go abroad, has denied news media reports that it is building up a stake in Rio Tinto.
In 2005, Chinese oil company Cnooc Ltd. launched a bid for California-based Unocal Corp., creating a political furor that spurred the U.S. Congress to pass legislation requiring closer scrutiny of foreign purchases of certain U.S. assets. The bid failed, and Unocal was acquired by Chevron Corp.
Under another scenario, a group of Chinese companies could buy a stake in Rio Tinto either to block the deal or to guarantee themselves a voice in how the combined company is run. But even this would be extremely expensive, as China would have to purchase shares on the open market, and the first hints of Chinese buying would likely drive the price up fast.
Chinese companies are only just beginning to embark on large-scale acquisitions overseas. In the biggest transaction so far, Industrial & Commercial Bank of China paid around $5.5 billion last month to buy a stake in South Africa's Standard Bank.
That hasn't stopped investment bankers from throwing out ideas.
In recent days, bankers have descended on mainland Chinese companies and government agencies to try to come up with scenarios outlining how China might play a role to safeguard itself against potential price surges if the merger of BHP and Rio Tinto goes through.
In a recent analysis published by the Australian National University, researchers found that China's per capita steel consumption is still less than one-fourth that of more developed economies such as South Korea, meaning demand could continue to explode for years if not decades to come.
One way China could act without arousing suspicions of a unilateral land grab would be for one or more Chinese companies to partner with a global player, such as Brazil's Cia. Vale do Rio Doce.
Bankers say such a bid would lack the cost savings of the BHP offer, and the price they would have to offer could make it a losing bet. CVRD didn't respond to requests for comment.
Chinese bidders also could team up with foreign private-equity funds in China.
With buckets of cash to invest and an urgency to partake in China's growth, private-equity firms are eager to team up with Chinese companies that want to expand abroad.
The Chinese, for their part, are looking for financial partners with global deal-making expertise to steer them through the political morass of investing in other markets.
A still simpler option raised by bankers: China could attempt to strike a long-term agreement on prices with BHP -- though with prices for many commodities near historic highs, some question the wisdom of negotiating long-term deals now.
If China decides to enter the fray, a clear-cut plan could require months of discussions at the highest level of its government.
China could argue that a BHP-Rio Tinto combination creates a monopolistic entity in the mining industry, but the country has little recourse for addressing such a situation.
In August, China passed an antimonopoly law similar to antitrust regulation in the European Union. The new regulation, however, doesn't go into effect until August 2008.
Even at that, 'the new laws may not be forceful enough to block a deal this big,' says one investment banker specializing in mergers and acquisitions.
One thing Chinese companies could do is put even greater resources into existing efforts to expand overseas by acquiring mining assets of their own. Such efforts were already well under way before the BHP bid surfaced, and there is no evidence of a coordinated government effort to step them up now.
But individual companies are certainly thinking along those lines. Ms. Chen of Baosteel says her company will continue its investments in coal and ore mines. 'We must do it in the future,' she says.
Meanwhile, mining players are scrambling to give assurances that they are striving to make more iron ore available to meet rising demand. And while their main mines in Australia and Brazil have still fallen short of demand, this stems partly from bottlenecks at ports and inadequate rail capacity. As a result, prices have soared, causing anxiety among Chinese leaders.
Unlike the prices of many other commodities, which are traded on open exchanges, the price of iron ore is typically set in secret annual meetings between steelmakers and the largest iron-ore exporters, including BHP and Rio Tinto.
When demand is weak, as it was in the 1990s, steelmakers are able to extract concessions. But in more recent years, the miners have pushed through enormous price increases, including a 71.5% surge in 2005 followed by rises of 19% in 2006 and 9.5% this year.
Annual negotiations have grown increasingly contentious. Some analysts are predicting that iron-ore prices could jump 30% or more next year, while others have suggested they could even double.
In 2006, tempers flared when reports surfaced that Chinese authorities were attempting to place a cap on the price of iron-ore imports. Chinese officials denied the reports, but documents later surfaced that appeared to prove the allegations. Senior Australian diplomats expressed displeasure with Chinese authorities, who later made conciliatory statements indicating they agreed prices should be set by the market.
China's dilemma is that it has few options for securing additional supply. Its own supply is low-quality and expensive to mine, analysts say. Another possible major supplier, India, has reined in exports to satisfy its own budding steel industry.
Meanwhile, a handful of companies are trying to develop new mines, including Fortescue Metals, a high-profile start-up launched by Australian entrepreneur and onetime alpaca importer Andrew Forrest. But those projects are turning out to cost more than expected and are taking a long time to develop.
Jason Dean / Laura Santini / Rick Carew / Patrick Barta