Planning to combine their mining operations in Western Australia, Rio and BHP will create the world's largest source of seaborne iron ore and hold considerable sway over prices. China is the world's largest buyer of the key steelmaking ingredient. So it's little surprise that the China Iron and Steel Association -- which describes the deal as a merger -- called for the global steel industry to unite to block it.
As always in China, though, it pays to notice who is doing the talking. It's telling that China's Ministry of Commerce, whose antimonopoly bureau holds the most power over any foreign dealmakers, hasn't joined the chorus.This graphic is particularly telling:
The math might explain the ministry's reticence. In the year through November, 42% of China's iron ore imports -- more than 235 million metric tons - came from Australia, China's top supplier. It means China can't take any meaningful action -- outlawing or penalizing Australian ore imports -- without substantially denting its own steel industry.
Alternatives are lacking. The entire output of Brazil's Vale, some 300 million tons last year, doesn't quite equal the amount the Australians have shipped this year. Buying all of its needs from Brazil, anyway, would make China beholden to a single supplier. Other large exporters fall short as well, collectively.
It also partly explains why Australia has continued to do well over the last year or so.
It also helps to explain why Chinese authorities and Chinalco executives are still so annoyed about the eventual Rio rebuff of Chinalco ... made possible, of course, by Rudd government reticence to allow the deal to go ahead.