The proposed merger between BHP Billiton and Rio Tinto's has been criticised by China's most powerful steel industry executive
BHP Billiton and Rio Tinto's proposed $170bn merger would be "terrible" for global competition and should be rejected by anti-trust regulators, according to Zhang Xiaogang, China's most powerful steel industry executive.
The comments by Mr Zhang, chairman of the China Iron and Steel Association and of Ansteel, one of the country's biggest steelmakers, are among the harshest criticisms of the proposed deal.
"It would be a terrible thing. You can't let competition disappear," he said.
The prospect of a merger between two of the world's biggest three suppliers of iron ore has been resisted by many steel companies. This is because of the extra power a BHP/Rio union would have for forcing through price increases for ingredient in steel making.
Last week the Australian anti-trust regulator approved the merger of the two Anglo-American rivals, leaving the European Union's competition authority as the final regulator to decide on the deal. It has until January to do so.
Chinese steel companies - which together make up the world's largest bloc of steel producers, accounting for more than a third of global output - have been particularly opposed to the merger.
China lacks its own supply of good-quality ore and so its steelmakers rely heavily on BHP, Rio and Vale of Brazil, the third big iron ore miner.
Iron ore prices have risen steeply in recent years, adding to the cost pressures for the steel industry.
Further price rises are expected next year in spite of the commodities slowdown.
Mr Zhang said Chinese steel production and consumption was slowing at a faster rate than many forecasters had expected, in a development that could add to worries about a prolonged spate of fragility for the global steel sector.
He said China's steel production and consumption - which last year reached more than 400m tonnes for both quantities -would this year be "about the same".
At the start of this year, many steel experts forecast the country's production and consumption to expand by more than 10 per cent compared to 2007.
"Many small furnaces in China have stopped production because they are finding it too expensive to keep going," Mr Zhang said.
"Steel companies in China are seeing lower demand as a result of the overall world economic slowdown. For instance, fewer goods are being sent from China to the US as US demand falters."
Mr Zhang said he thought the Chinese steel industry would return to a higher level of growth in 2009, with overall expansion in demand and production of a "few per cent".