And then there was one . . . BHP Billiton’s daydream deal is not quite a monopoly, in terms of its control of the Pacific Basin iron ore market, but it is as near as makes no difference.

A political storm is brewing over BHP’s overtures to Rio Tinto, its Anglo-Australian mining sister. This is more than a tussle over rocks in an Australian desert. It is about the price of cars, computers and the cost of building almost anything.

Steelmakers worldwide, already smarting over massive price increases in iron ore, are already preparing to fight the deal, if it goes ahead. Even within Europe, where mills are less dependent on Australian ore than their Asian rivals, there is huge concern and telephone lines to the European Commission are red hot.

Rumours are circulating that China, in defence of its steelmakers, might seek to spoil the cosy Australian merger by purchasing a large stake in Rio and demanding a seat at any negotiations.

Eurofer, the European steelmakers lobby, talks of an iron ore duopoly that has pushed up prices each year for six consecutive years and secured a 72 per cent price increase in 2004. Annual negotiations between steelmakers and the iron ore triumvirate, BHP, Rio and Compania Vale do Rio Dolce (CVRD), which together represent 70 per cent of the market, are about to begin.

The spot price of iron ore is up 130 per cent on the previous year and the expectation is that the mining companies will demand an extra 50 per cent on the price of a tonne of ore.

Most at risk is China, the world’s biggest steel producer, which imports almost every tonne of ore smelted in its blast furnaces. China’s rampaging consumption of steel is blamed for the escalation in the iron ore price, but it is not quite that simple.

This problem has been brewing for years and stems from the mining industry’s long-term anxiety about the boom and bust behaviour of base metal prices. Typically, miners dig new pits in a boom and bring metal to market just as the price collapses. Companies, such as Rio and Billiton, the ambitious South African firm that merged with Australia’s BHP, sought to create a more sustainable business, buying up rivals in an effort to limit the growth in new mine capacity.

The strategy has been hugely successful and China’s thirst for raw materials has kept base metal prices stronger for longer than ever experienced in the mining industry.

For the steel industry, it is an unfolding nightmare as the mills are caught in a pincer. As their suppliers 130% of iron ore and coking coal diminish in number, their customers too are joining forces in mergers and joint ventures, demanding better terms for their steel supplies.

It begs the question what is the hidden plan behind BHP Billiton’s initiative. Its advisers must be aware that the European Commision, the Department of Justice in Washington, and every regulator from Seoul to Beijing will pore over the details of a bid for Rio Tinto.

BHP cannot afford to offend Chinese buyers. The notion, put forward by a BHP adviser that the sale of a few minor assets might satisfy the steelmakers is absurd. There is, therefore, a possibility that Asian steelmakers could be invited to take part in this transaction, perhaps in the spin-off of the iron ore business into a new company, part-owned by Chinese investors.

That would create its own complications, in terms of Australian control over Australian resources but it would give China what it wants: more access to ore.

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