Even as steel industry officials downplayed the threat from a new alliance announced Friday between global miners Rio Tinto PLC (RTP) and BHP Billiton Ltd. (BHP), Chinese analysts warned the proposed Rio-BHP joint venture signals a new danger to China's interests in the iron ore market.

Rio Tinto is entering a 50-50 iron ore joint venture with BHP, ending its planned $19.5 billion partnership with Aluminum Corp. of China, or Chinalco, and opting instead for a $15.2 billion rights issue.

Yu Liangui, a senior analyst for Chinese metals consultancy Mysteel, said the Rio-BHP development narrows China's already dwindling options on its iron ore term price talks this year with Rio, BHP and Brazilian miner Vale S.A. (VALE).

"China still had hopes that they could negotiate with three miners," he said. "Now it will be as if there are just two. Things are getting more difficult for China."

The Chinese fear the new joint venture will push iron ore supply deeper into monopolistic hands, said Ma Haitian, a senior steel analyst at state-owned metals consultancy Antaike.

"It will definitely be an even bigger threat than just having three big miners," Ma said.

"The big three miners on their own were already pretty monopolistic, and in past years, it's worked to their advantage," Yu said. "With the BHP-Rio joint venture, that will be even more of the case. It'll be difficult to break this monopoly."

 
   Anti-Monopoly Measures Available, Assoc Says

A senior industry official said it was too early to judge how the joint venture will act as ore suppliers, but he warned that anti-monopoly measures were available if monopolistic tendencies began to show in the Rio-BHP tie-up.

"At this point, it's merely a joint venture," said Zou Jian, an executive director of the China Iron and Steel Association.

"We can't call it a new monopoly yet. But if it does become a new monopoly, there will be anti-monopoly measures available to deal with it."

Zou said he didn't believe the joint venture would affect ore price talks yet.

"China's too big of a market," Zou said. "That in itself is an advantage."

But the Rio-BHP deal has wide potential for reshaping the iron ore market and may already have spooked China's steel industry leaders.

Citing unnamed sources, Steel Business Briefing, a London-based trade publication, reported Friday that Chinese steel industry officials have agreed among themselves to accept an iron ore price cut 33% below last year's benchmark, similar to deals struck between Rio Tinto and Japanese and Korean mills last week.

China has publicly insisted to date that it would only accept a reduction of at least 40% on term prices retroactive to April 1.

Association and Baosteel officials couldn't be reached for comment on the report. Their recent comments haven't signaled any change of stance.

 
   Chinalco Hasn't Yet Decided On Rights Issue, Exec Says

Still, China retains a stake in iron ore supply. Besides other successful Sino-Australian iron ore deals earlier this year, Chinalco remains a shareholder in Rio Tinto.

But Chinalco said Friday it hasn't yet decided on how it would participate in Rio Tinto's $15.2 billion rights issue.

"We haven't begun to consider the rights issue yet, but we will be looking into it and will decide soon," said Lu Youqing, Chinalco's vice president.

Chinalco holds 12% of Rio's London-listed stock and about 9% in Rio Tinto Group.

Analysts said the vanished deal may badly impact Chinalco's near-term profit but would otherwise be unlikely to affect the company's own development plan.

"The planned deal could have helped Chinalco cut its costs on its first investment," said Heng Kun, a metal analyst with Everbright Securities Co. "However, (the canceled deal) will definitely affect its profit, with less bonus from Rio Tinto."

Heng added that Chinalco's overseas expansion ambitions were unlikely to be affected by the broken deal.

-By Chuin-Wei Yap, Dow Jones Newswires; 8610 6588 5848; chuin-wei.yap@dowjones.com

(Juan Chen contributed to this story.)