BHP chief tries to soothe China nerves on Rio deal

BEIJING (Reuters) - China is worried that BHP Billiton (BHP.AX) will have too much power in setting iron ore prices if it takes over rival Rio Tinto (RIO.L) but recognises that a tie-up could help secure long-term supplies, a manager at the country's No. 2 steel maker said on Thursday.

The official spoke as BHP Chief Executive Marius Kloppers was making the rounds in Beijing to try to allay China's concerned about the proposed $120 billion-plus (58.1 billion pounds) all-share takeover.

China's steel industry, the world's biggest, has voiced worries that a combination of BHP and Rio could drive up the price of iron ore.

The two mining giants together account for just under two-fifths of China's imports of the commodity, the main feedstock for steel.

Chu Jiandong, vice general manger of Tangshan Iron & Steel Group Co, said steel executives who met Kloppers in Shanghai on Wednesday reiterated their concern to him that an enlarged BHP could exercise monopoly power over ore prices.

But Chu said China's big firms also saw a silver lining in the proposed takeover, which Rio has rejected as too low.

"We have reached consensus that the possible merger could help lead to lower costs and increased production of iron ore as well as to more long-term contracts between both sides," he told Reuters.

Chu, whose company is China's second-biggest steel maker, was making the point that Kloppers has been trying to get across as he has toured the world to explain the mega-merger: a BHP-Rio combination will be able to dig out and deliver more ore together than they can separately.

Kloppers also met representatives of the industry leader, Baoshan Iron and Steel Co (Baosteel) (600019.SS), and of other leading steel mills on Wednesday.

In Beijing, he was due to pay calls on the National Development and Reform Commission -- China's main planning agency -- as well as the Ministry of Commerce and the China Iron and Steel Association.

(Reporting by Niu Shuping; Writing by Alan Wheatley; Editing by Anne Marie Roantree)