The Australian reported that Japanese and Korean steel makers are shuddering at the prospect of a BHP Billiton Rio Tinto merger, even as they brace for separate mauling from the dominant Australian iron ore and coking coal producers at the imminent annual contract negotiations.

The report cited an official of the Japan Iron and Steel Federation as saying that "Iron ore and coal industries are moving towards an oligopoly situation, which is not favorable to keeping a balance between suppliers and buyers and it's not welcome to us.” But JISF official expected the merger proposal to ultimately succeed.

Mr Norhiro Fujito of Mitsubishi UFJ Securities said that "Though Rio has rejected the proposal at this stage, I think eventually they will merge to create an ultra-giant supplier group. Even a large Japanese steel manufacturer such as Nippon Steel cannot cope with such an ultra giant. Japanese options are very limited; it must force up raw materials prices and harm earnings."

Mr Takashi Aoki of Mizuho Asset Management told Reuters that "This kind of mega merger runs the risk of destroying the price setting mechanism, based on supply and demand. If the deal went through, the ultimate consequence would be another wave of rationalization in the Japanese steel industry. Since the last consolidation five years ago produced JFE Holdings, Japan's second largest steel maker and the world's No3, the Japanese companies and South Korea's POSCO have preferred to form loose alliances. But it may be necessary now for the main steel companies to pursue radical M&A strategies.”

Japan and South Korea are Australia's No2 and No3 customers for iron ore and coking coal, after China. Increasingly, and in competition with Chinese and Indian companies, Japanese and Korean customers are chasing security of supply by direct investments in Australian mineral and energy projects.