European steelmakers voiced fears yesterday that the possible $350 billion (£166 billion) alliance between BHP Billiton and Rio Tinto would create a duopoly with CVRD in iron ore and force up prices around the world.

The uproar came as sources close to BHP said that the Anglo-Australian mining group would begin talks with Rio Tinto’s biggest shareholders next week, in the hope of forcing Rio’s board to the negotiating table.

BHP is understood to have a financing package in place with Citigroup to cover the debt that would arise from its offer. The size of the facility, thought to be up to $70 billion, raised speculation about the group revising its offer.

Marius Kloppers, BHP chief executive, and his closest advisers will begin a round of meetings in the UK and Australia as they try to seal the second-biggest company takeover in history. Rio’s shares raced up another 6 per cent, or £3.28, to £56.24 yesterday on hopes that BHP may raise its offer and speculation of a possible rival approach from a Chinese consortium. BHP dropped 28p to £16.28.

Dieter Ameling, president of the German Steel Federation, said the prospect of such a deal was of great concern. “The iron ore market is already highly concentrated,” he said. “The Big Three [BHP, Rio and CVRD of Brazil] dominate three quarters of the market. The merger of BHP and Rio Tinto would result in a duopoly.”

The comments were echoed by Sir Brian Moffat, the former British Steel chief executive and head of Eurofer, the European steelmakers’ organisation, who said that the European Commission would open an inquiry into such a deal.

He added: “We have concerns about the degree of concentration already. There was an unprecedented 72 per cent iron ore price increase in 2004, driven by the fact that we have a market controlled by three players.”

BHP revealed on Thursday that it had approached Rio about an offer of three BHP shares for one Rio share.

Rio, led by Tom Albanese, the chief executive, rejected the deal as one that “significantly undervalued” the company and its prospects. A combined BHP-Rio Tinto would be three times larger than its nearest rival in the mining industry, and the scale of their activities would almost certainly provoke investigations by the European Commission, the US Department of Justice and Australian authorities.

A Commission spokesman said no decision would be made until a formal takeover proposal was made.

Analysts said that Rio could try to attract a “white knight” to defend itself, although given its size, there were few options. A state-backed Chinese consortium is seen as the most likely rival.

Times Recommends

• Minister in talks with Saudis to protect creditors
• Premier Inn hits back in £29-a-room row
• Bankers hit back at 'populist' bonus supertax