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China's biggest steelmaker looks set to gatecrash BHP Billiton's US$125 billion ($164 billion) bid for rival Rio Tinto.
In an interview with a Chinese newspaper, Xu Lejiang, chairman of China's Baosteel, said that he was "considering" a bid for the Australian miner and that any offer could exceed
US$200 billion.
"The possibility of a takeover plan going ahead is very big," Xu said in an interview with 21st Century Business Herald. On price, he added: "US$200 billion is probably not enough."
Baosteel is much smaller than Rio, but it is owned by the Chinese state, which has become much more aggressive in investing its more than US$1.4 trillion in foreign exchange reserves abroad.
Rio and BHP declined to comment.
Despite the financial muscle that Baosteel could bring to bear, market sources said yesterday that such a deal was unlikely given the price and likely opposition of Rio management and possibly from Australian politicians.
"I would be surprised if it happened given the other players involved and the money they have," said Dan Smith, metals analyst at Standard Chartered.
Rio Tinto chief executive Tom Albanese has said BHP's all-share offer is "ballparks away" from Rio's fair value and has been talking up the company's prospects as an independent group, highlighting its expansion plans for its Pilbara iron ore mine in Western Australia. Most analysts believe BHP will have to increase its offer to get a deal done.
A Rio-BHP combination would create one of the world's largest companies with a 27 per cent share of the iron ore market - the basic material for steel - as well as a top position for several other commodities.
If Baosteel were to bid, it would probably have to partner with another company or draw heavily on Government funds. The state-owned enterprise would likely face political opposition in Australia, where Rio is one of the largest companies.
Baosteel's motivations, however, are similar to other steel producers who have begun buying up iron ore assets to shield them from rising prices.
Since January, iron ore prices had risen by more than 70 per cent to reach nearly US$200 a tonne at delivery.
That's up from a low of $18 a tonne at the port of the country of origin five years ago. ArcelorMittal, the world's largest steel producer, has been furiously signing deals to reach its stated goal of 75 per cent self-sufficiency.
- Independent