Baosteel, China's largest steelmaker, is weighing up making an offer for Rio Tinto that would out-price BHP Billiton's proposal for the Anglo-Australian mining group by more than 10 per cent.

Baosteel's chairman, Xu Lejiang, is reported as saying the company is considering a bid for Rio Tinto of at least $200 billion (£97 billion). He said: "The possibility of a takeover plan going ahead is very big."

A bid at more than £97 billion is 10.1 per cent higher than BHP Billiton's current proposal, worth £87.2 billion, which offers Rio Tinto shareholders three BHP shares for every Rio share. Rio Tinto has rejected the approach and BHP Billiton is yet to make a firm offer.

At BHP's share price today, which fell 10p to £15.67, the share component of its proposal to Rio totalled £47 billion which is 14 per cent below Rio Tinto's £54.62 billion market value today after its shares lost 4p to £53.39.

BHP's proposal for Rio also includes £25.7 billion worth of debt and a £14.5 billion return to shareholders.

Marius Kloppers, BHP's chief executive of two months, who is responsible for the approach to Rio Tinto, has refused to be drawn on whether he will consider revising the proposal, repeatedly stating that BHP wants to "discuss what's on the table".

A deal with Baosteel would calm fears from Chinese steelmakers that a Rio Tinto and BHP Billiton combination would create a monopoly in the iron ore market. Mr Kloppers has been recently been touring the Far East in an attempt to drum up both industry and shareholder support for the deal.

However, Japanese steelmakers have denounced the merger, while the China Iron and Steel Association said the deal would "create an even bigger monopoly". Together, BHP and Rio Tinto would control 36 per cent of the iron ore market.

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