Will this $188.5 billion megadeal ever happen? Perhaps not, if those meddling regulators have anything to do with it. At the heart of their growing list of concerns is whether this union could further pressure steel prices up, curbing development around the world. But isn’t it a bit late for that?

BHP Billiton's proposed acquisition of rival Rio Tinto is facing increased scrutiny from European regulators, who are concerned that the combination could further escalate steel prices and slow development around the world, according to people close to the matter.

BHP Chief Executive Officer Marius Kloppers remains confident that regulators won't nix the deal and that he can get it completed by the fourth quarter of this year. But those close to the mining giant acknowledge they are facing more questions from regulators than they anticipated.

A slowing of the process only exacerbates the sense among investors that the $188.5 billion deal, which is the world's largest pending takeover, might not come to fruition -- a skepticism reflected in Rio's market value, which has fallen well below the value of BHP's all-stock offer.

Regulators are concerned that a linkup between BHP and Rio would exert too much power over the price of iron ore, which has risen 71% this year, and in turn cause steel prices to continue their rise. Iron ore is a key ingredient to make steel. Steelmakers have largely blamed high iron ore costs for the 50% rise in the steel prices since January. In various parts of the world, bridge, housing and infrastructure projects are on hold or slowing because contractors can't afford the high price of steel.

Even as complaints escalate, BHP and Rio are pushing for prices to go even higher on the iron ore it ships to China, the world's biggest consumer of iron ore and producer of steel. Mr. Kloppers admits the move to push for higher prices isn't well-timed, but that he must also consider shareholders and investors. He blamed the higher costs of iron ore on limited supply and constraints on shipping and rail transportation.

"It would have been easier, less complicated if we didn't have these scarcities," Mr. Kloppers said. "All of the publicity around iron-ore prices is very complicated for us. But we have trust in the European system and how they will look at it."

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