RSSThe World of Commodities: Who Owns Whom? (1)
A round of mammoth mergers in the world’s metal markets is currently underway. There are two reasons why this is an important subject for those who are interested in construction: (1) a smaller number of resource owners will upwardly bias commodity prices even further than is presently the case; and (2) investment decisions with respect to future resource projects depend on which companies really own what properties − which comes down to the question, who owns whom?
A major focus of the flurry of takeover proposals is to gain control over the metals used in steelmaking – iron ore, coking coal and nickel, which is used as an alloy in producing stainless steel. Lining up the ingredients used in aluminum production is also viewed as important.
Between 2000 and 2006, use of steel in China tripled and in the world as a whole, doubled. According to media reports, China now accounts for 40% of world steel demand. Supplying Baosteel of China with raw materials has become a major challenge, but also a rewarding one.
The two major buy-out proposals at play in the global mining sector are as follows.
(1) Anglo-Australian BHP Billiton has launched a $140 billion hostile takeover bid for Anglo-Australian Rio Tinto PLC. And
(2) Brazil’s Companhia Vale do Rio Doce (a.k.a. CVRD or Vale) has offered $90 billion for Anglo-Swiss Xstrata PLC.
Tomorrow or the next day, I’ll discuss these two major takeover bids and the large dollar investment plans around the world (and particularly in Canada) that are being affected.
Alex Carrick
