In a move that could boost competition in the global iron-ore business, Brazilian antitrust regulators have imposed substantial restrictions on recent acquisitions by the world's top iron-ore producer, Brazil's Companhia Vale do Rio Doce.
The decision, which some observers regard as Brazil's most important antitrust ruling to date, came months after the company pushed through a 71.5 percent price increase in global iron-ore prices. Since the mineral is a primary steel ingredient, its price affects steel prices, which in turn affect prices on goods ranging from refrigerators to automobiles.
Brazil's top antitrust body, in a meeting that ended late Wednesday, approved CVRD's past acquisition of four competing companies while imposing restrictions the company had fought tooth-and-nail: Regulators ordered CVRD to choose between selling a company it had acquired or changing what it deemed anticompetitive business relationships and easing CVRD's grip on strategic transport sectors.
The 4-to-3 ruling by Brazil's Administrative Council of Economic Defense is a landmark in Latin America, where competition regulators either don't exist or exert little real power over corporate giants. The company can appeal the antitrust agency's decision through the regular courts.
The decision was made after months of argument between CVRD and Brazil's steelmakers, which feel cornered by the mining behemoth's dominant market position in iron ore and strategic railways.
The decision "favors the entry of new companies to compete with CVRD in the mining business," said Cleveland Prates Teixeira, a former Brazilian antitrust commissioner and now an industry consultant.
The biggest benefactor of the decision is Benjamin Steinbruch, chairman and controlling shareholder of one of Brazil's largest steelmakers, Companhia Siderurgica Nacional, known as CSN. Steinbruch has pledged to transform his steel company into a mining and logistics competitor to CVRD, but his ambition has been curbed by a contractual clause forcing his company to offer CVRD any iron ore from CSN's huge Casa de Pedra mine that the steelmaker doesn't use. The contract limits CSN's ability to sell its iron ore to third parties, effectively preventing it from becoming a CVRD competitor.
Regulators deemed the Casa de Pedra preference rights improper. Freed to sell his ore on the open market, Steinbruch will try to break into the world's clubby iron-ore industry, where CVRD, Australia's BHP Billiton PLC and Britain's Rio Tinto Ltd. control 74 percent of the market.
The other CVRD concession would be a restructuring of its 38 percent stake in a key railway, MRS Logistica, stripping it of any veto power the miner might have in the company. Steelmakers, who are also shareholders in the railway and big users of its trains, feared CVRD might use its shares to dominate the railroad to the detriment of the steel industry.
At the center of the railway dispute are Brazil's growing infrastructure bottlenecks, which may lead to energy shortages and growing freight costs in coming years.
CVRD had sought to cast the antitrust issue in nationalistic colors, portraying itself as Brazil's largest private investor and touting the importance of Brazil backing its homegrown multinational firms.
The steelmakers saw it differently. Worried about rising costs of iron ore and about CVRD's sway over logistics, they asked regulators to scrutinize the company's growing market power.
Even as regulators were handing it a defeat, CVRD announced its best quarterly earnings yet. Powered by the unprecedented price increase earlier this year, the company posted second-quarter earnings of $1.5 billion, more than double the year-earlier profit of $724 million.
Regulators offered CVRD an alternative to the restrictions. The company would be allowed to keep the preference clause in its CSN contract if it agrees to sell Ferteco, one of the mining companies whose acquisition the agency approved Wednesday. But CVRD chief executive Rogger Agnelli ruled out a sale of Ferteco, calling it "an important CVRD asset."