Johannesburg, South Africa — MININGREVIEW.COM — 02 March 2010 – Costs for ArcelorMittal’s South African steel unit could rise by over US$250 million (R1.875 million) a year after a key iron ore supplier announced its intention to stop selling its products at a discount.
Kumba Iron Ore “’ which supplies ArcelorMittal South Africa with around two-thirds of its iron ore annually “’ said on Friday that it intended to sell the steel-making ingredient at market rates as from 1 March. ArcelorMittal South Africa said it had enough stockpiles of the raw material to last two months, according to media reports.
The company “’ Africa’s biggest steelmaker “’ has said it could take legal action against Kumba “’ the South African iron ore unit of global miner Anglo American Plc “’ if talks to resolve the impasse failed.
Analysts said ArcelorMittal South Africa faced a threat to its profits, and the country could see higher steel prices. Matt Brenzel, a base metals analyst at African Harvest Securities, said ArcelorMittal South Africa could pay around R435 per tonne of iron, from R125 rand per tonne.
“It basically adds over R2 billion to the cost to ArcerlorMittal, which is quite significant,” he added. He said the standoff between the two firms could only be resolved through a court process or arbitration.
“There is no doubt that if the court agrees with Kumba Iron Ore, that cost increase would be passed on to the consumer in one way or another,” Brenzel pointed out.
Mohamed Kharva, a steel analyst at Nedcor Securities, said if ArcelorMittal South Africa was to buy iron ore at market prices it may have to curtail output.
“They may have to recoup some of the costs from customers, which then puts pressure on the competitiveness of the South African industrial sector," Kharva said. “It’s unlikely that this matter will be resolved in the short term. This is very negative and a lot of competitive advantage that ArcelorMittal has had is at risk.”
Shares in Kumba fell 1.51% to R361.45 yesterday after jumping more than 6% on Friday following the news of the termination of the iron ore supply deal. ArcelorMittal South Africa shares were suspended from trading on Friday at the company’s own request.
South Africa’s Trade and Industry Minister Rob Davies has said that he plans to meet Kumba, Anglo and ArcelorMittal South Africa to discuss the dispute and its impact on the companies.
The Department of Trade and Industry said it had noted the dispute between Kumba Iron Ore and ArcelorMittal South Africa, and it would carefully monitor developments and assess the implications for the broader economy.