The European Commission opened an in-depth investigation on Friday into BHP Billiton's $170 billion unsolicited bid for rival miner Rio Tinto, with prices of iron ore already soaring.
The European Union's executive arm issued a tough statement with a list of sweeping concerns but said Australian BHP would be able to respond. The probe has a deadline of Nov. 11.
The move came on the same day BHP matched Rio Tinto's prices with a near doubling of its own prices for iron ore lumps, mostly produced in Australia and many of them shipped to China.
"Concerns arise in particular as regards the markets for iron ore, coal, uranium and aluminium and mineral sands, because the proposed takeover could result in higher prices and reduced choice for these companies' customers," the Commission said.
Competition Commissioner Neelie Kroes said the firms produced basic commodities and competition in Europe must remain strong.
"The recent surge in commodity prices has had a serious impact on the industries buying these commodities, their customers, and ultimately all the consumers in Europe and elsewhere in the world," she said in a statement.
BHP would gain new power over iron ore and reinforce its leading position in metallurgical coal, the two main ingredients in steel.
The Commission said that would lead to "very high" levels of market concentration.
"There is a serious risk that the planned takeover could have a negative impact on the outcome of price negotiations with steel customers," the Commission said.
It said there was a serious risk the new company might have an incentive to reduce investment or slow its investment projects, cutting supplies and further raising prices.
The deal would combine two significant suppliers of uranium, reducing the choice of alternative suppliers, it said.
It also raised concerns about aluminium and mineral sands, which contain titanium oxide used in paint.
EU steel firms have vowed to fight the merger, which is also opposed by many customers in Asia.
The biggest tussle will be, as it always is in merger reviews, market definition.
BHP looks to a broad market that includes domestic ore produced in China, while others argue that the assessment should be made by looking at prices charged for iron ore sent by ship.
Companhia Vale do Rio Doce is the largest company sending iron ore by ship and the combined BHP-Rio would have nearly 40 percent of the seaborne iron ore market.
The U.S. Justice Department Antitrust Division cleared the deal this week. The bid would have little effect in the United States.
The European Commission requires divestures or behavioural remedies to fix deals that it finds anti-competitive, and prohibits them if they cannot be fixed.