China’s MMG (HKEX: 1208) plans to spend US$500 million to acquire Anglo American’s (LSE: AAL) Brazilian nickel business. Facing EU objections, the company has committed to maintaining or even expanding nickel supplies to Europe. The European Commission told MMG last Wednesday that it was concerned the deal would divert low-carbon ferronickel supply away from the European market, thereby pushing up production costs for European stainless steel makers.

The European Commission said: “Should diversion occur, combined with limited alternative supply channels in the market, it could push up prices of low-carbon ferronickel,” noting this would negatively affect the costs of European stainless steel manufacturers.

MMG rebutted this, saying Europe remains the most attractive market for this Brazilian ferronickel, and the company has neither the incentive nor the intention to redirect supply to China. The company also said it is willing to issue supply guarantees to European customers or the European Commission, planning to supply at least no less than Anglo American’s current supply levels to Europe, with the possibility of further increasing supply volumes. Supply dispute
Anglo American plans to sell its Brazilian nickel business to MMG, and Brazilian regulators have also launched an investigation into the potential impact of the deal on ferronickel supply. Ferronickel is a core raw material for stainless steel production.

Anglo American disagrees with the European Commission’s assessment, saying it ignores the substantial growth in global ferronickel supply over the past 12 months. An Anglo American spokesperson said in an email to Bloomberg: “Producers in Latin America, New Caledonia, South Korea, Indonesia, Japan and many other places provide European ferronickel buyers with ample, diverse and continuously growing supply.” The spokesperson added that the acquisition will not reduce the number of suppliers in the market, but will maintain the existing scale of supply entities.

Nickel business expansion
This acquisition will mark MMG’s entry into nickel production and further expand the footprint of Chinese companies in the global nickel industry; Chinese companies have already completed several major nickel investments in Indonesia.

The Hong Kong-listed mining company operates across Australia, Africa and South America, and is effectively controlled by the state-owned major mining and trading group China Minmetals. Upon completion of the transaction, MMG will take over Anglo American’s Barro Alto and Codemin mining areas in Brazil. The two operations together produce about 40,000 tonnes of nickel contained in ferronickel annually; MMG will also acquire two undeveloped nickel projects. The EU’s objection makes the supply security of low-carbon ferronickel the central focus of this regulatory review. MMG can now submit its response to the EU and request an oral hearing. The European Commission must make a final ruling by November 30.