BHP, Rio Tinto face Euro competition inquiry

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European competition authorities today opened an investigation into BHP Billiton and Rio Tinto’s huge iron ore joint venture in Western Australia.

Anti-trust officials will investigate whether the proposed $116bn project by two of the world’s three biggest iron ore producers breeches rules on price fixing. The investigation will centre particularly on effect of the venture on the market for iron ore by sea. Much of the iron ore produced in Australia is shipped for use in China.

Neither company commented on the investigation today, but industry bodies have criticised the joint venture. Eurofer, which represents the interests of a number of steel makers, said that it remained opposed to the deal: “We remain convinced that the joint venture would be an unacceptable concentration which will significantly restrict competition in the seaborne iron ore market,” a spokesman said. Others, including the World Steel Association, have also voiced opposition to the tie-up.

Both companies have stressed that the deal is for iron ore production only and that each will market their share of the iron ore separately. The two groups expect combined savings of about $10bn a year from the joint venture.

The agreement was struck after BHP Billiton failed in a bid to buy Rio, which is the bigger iron ore producer, in 2008. At the time, BHP withdrew its bid because of changes in market conditions, but analysts had also predicted that the deal may have also stumbled on competition grounds.

The price of iron ore has jumped in recent months as manufacturing confidence has grown and factory inventories have been run down. Strong Chinese growth numbers last week also gave a fillip to the commodity. Last week, Rio Tinto’s fourth quarter production numbers showed strong iron ore demand from China.

Separately, four Rio Tinto employees who have been imprisoned in China since last July on spying charges, should learn their fate within the next month. The four, including Stern Hu, an Australian national, were told earlier this month that their case has been handed to prosecutors after a lengthy investigation.

The four were initially arrested on charges of stealing state secrets, a crime that carries the death penalty in China. The charges were later watered down to industrial espionage, for which they face a prison sentence of up to seven years if convicted.

Prosecutors must now decide whether or not to bring the cases to trial, but any decision to move ahead is likely to result in a conviction, such is low number of acquittals in Chinese criminal cases.