Johannesburg, South Africa — MININGREVIEW.COM — 31 March 2010 – ArcelorMittal South Africa (Amsa) “’ South Africa’s largest steel producer and a unit of the world’s top steelmaker “’ is to raise prices to partially ease the impact of an ongoing dispute over iron ore supplies.
In a statement released here the company revealed that it was increasing its steel prices by R600/tonne to accommodate the increased cost for its iron ore, after a favourable agreement with Kumba Iron Ore was terminated. The state wants Amsa probed for abusing its dominant position and excessive pricing.
Miningmx.com reports that Amsa is making clear that the steel price hikes and possible closures of its plants, with resultant job losses, are the result of Kumba’s decision to terminate the favourable iron ore supply agreement.
Amsa had an agreement to buy iron ore at cost plus three percent from Kumba subsidiary Sishen Iron Ore Company (SIOC) when the steel maker held a 21.4% stake in the Sishen mine. Amsa failed to convert its old-order rights to new-order rights, and that stake reverted back to the state.
Now a battle has broken out over the allocation of that stake in the form of a prospecting right to a politically linked group called Imperial Crown Trading 289, reports miningmx.com. Kumba had applied for mining right over the stake to give it full ownership of Sishen, but lost out to Imperial Crown, a decision that has raised eyebrows and a lot of questions about possible irregularities.
Kumba told Amsa in February that from March SIOC would start charging the steel group commercial prices for iron ore. Amsa had qualified to buy 6.25 million tonnes of ore a year at cost plus three percent, which meant iron ore purchases at around R220/tonne. This will now rise to around R900/tonne.
"We dispute SIOC’s position and firmly believe that SIOC remains contractually obliged to continue supplying iron ore at cost +3%, pursuant to our long term contractual arrangement," said Amsa CEO Nonkululeko Nyembezi-Heita.
The dispute resolution mechanism under the agreement has been triggered and she said there was little doubt the matter would go to arbitration.
“It may, however, be some time before this dispute is resolved and, in the meantime, we have reluctantly come to the conclusion that the only prudent course for ArcelorMittal in addressing SIOC’s claims is to increase steel product pricing, notwithstanding our firm belief that we will prevail in our disputes with SIOC,” she said in a statement.
"We regret that this will involve passing on increased prices to our customers,” Nyembezi-Heita added.
Amsa will hold the money raised by the surcharge in a special account and pay it back to customers plus interest if the arbitration hearings go in its favour and it reverts to the cost-plus-three-percent arrangement.
The DTI is unhappy with Amsa pricing methods and believes the surcharge will result in excessive pricing in the domestic market. “The department will be referring this matter to the Competition Commission to investigate Amsa for abuse of dominance and excessive pricing,” it said.