News Room - Steel Industry

Posted on 31 Mar 2010

ArcelorMittal S. Africa Introduces Surcharge on Steel

ArcelorMittal South Africa Ltd., a unit of the world’s largest steelmaker, will introduce a surcharge on steel with immediate effect after failing to resolve a pricing dispute with Kumba Iron Ore Ltd., which supplies two-thirds of its iron ore.

 

The surcharge, based on iron ore spot prices, may add about 600 rand ($81) per metric ton to the price paid by commercial steel users, Chief Executive Officer Nonkululeko Nyembezi-Heita said. That’s equivalent to a rise of about 11 percent on the 5,500 rand a ton that the company usually charged, said a spokesman, who declined to be identified in line with policy.

 

ArcelorMittal South Africa is trying to prevent Kumba from canceling an agreement to supply iron ore at 3 percent above production costs. The pact boosts the profits of the steelmaker while depressing those of Kumba.

 

Vanderbijlpark-based ArcelorMittal South Africa will in the “next couple of days” sign an interim agreement with Kumba, which wants to supply iron ore at commercial rates, Nyembezi- Heita said. “We tried to get Kumba to supply ore at cost-plus 3 percent until the end of June. They refused.”

 

The steelmaker was left with “no alternative” and had to “mitigate the additional iron ore cost” with a surcharge, it said in a stock exchange statement today. The surcharge will be refunded to customers if ArcelorMittal South Africa successfully enforces its agreement, it said.

 

Mining Rights

 

Kumba, 63 percent-owned by Anglo American Plc, said on Feb. 26 it wouldn’t abide by terms of a 2001 pricing accord because the steelmaker hadn’t renewed its mining rights for 21.4 percent of the Sishen mine by a government deadline of May 2009. This allowed it to cancel the nine-year-old supply contract, it said.

 

Kumba’s Sishen Iron Ore Corp. owns the other mining rights in Sishen, in South Africa’s Northern Cape province. “We always understood that Kumba will take the lead,” in renewing mining rights, Nyembezi-Heita said. Kumba wasn’t immediately available when Bloomberg News called seeking comment.

 

Iron ore prices are rising as steelmakers restart capacity and rebuild stockpiles after the biggest slump in demand since World War II.

 

South African Trade Minister Rob Davies said on March 11 that he was concerned the dispute would affect local steel costs. The Department of Trade is looking into the matter and will comment later today, spokesman Sidwell Medupe said by phone from Pretoria.

 

Gold, Platinum

 

Miners in South Africa, the world’s largest platinum and fourth-largest gold producer, are facing higher labor and power costs at the same time as mines are getting deeper, making them more costly.

 

Higher steel prices will hurt South African infrastructure projects and raise mining costs, Sivi Gounden, chairman of Optimum Coal Holdings and former head of Bateman Engineering NV, said by mobile phone today. “Steel is a primary input in the mining space, it will have an impact at a very broad level.”

 

A “significant” increase in steel prices could make imports more feasible, AngloGold Ashanti Ltd., Africa’s largest producer of the precious metal, said in an e-mailed response to questions on March 12. Higher steel price will have “a knock-on effect” for Harmony Gold Mining Ltd., Chief Executive Officer Graham Briggs said by mobile today.

 

Shares in ArcelorMittal South Africa rose as much as 2.2 percent to 92 rand, and were trading at 91.50 rand as of 3:17 p.m. in Johannesburg. Kumba fell 0.9 percent to 347.51 rand.