ArcelorMittal SA Announces New All-In Price for Local Steel

Africa’s largest steelmaker ArcelorMittal South Africa (AMSA), which is embroiled in a bitter dispute with Kumba Iron Ore (KIO) over iron-ore supply and prices, reported on Wednesday 28 July 2010 that it would, from August 01, suspend a controversial iron-ore surcharge and begin charging a “single all-in price”, reflecting the higher cost of iron-ore as agreed upon in an interim price agreement with KIO last week.  However, the company indicated that, even under the new formula, domestic selling prices would decline by an average of 3% as from August 01, 2010, when compared with July prices, which were set against a base selling price, but also included the surcharge. In July, the JSE-listed steel producer decreased its base domestic steel prices by between R190/t and R715/t on flat steel, and by between R300/t and R715/t on long products. In the same month, the surcharge was decreased by R188/t, to R525/t.  The interim arrangement with KIO, which is effective from March 1, 2010, to July 31, 2011, replaced a now disputed cost-plus 3% arrangement that had been in place between the two companies since 2001.  Iron-ore would now be supplied to the Saldanha works at a fixed price of $50/t free-on-rail and a fixed price of $70/t, for both lump and fine material, supplied to AMSA’s inland facilities. Under the previous arrangement, which KIO announced had been terminated as from March 1, 2010, owing to AMSA’s failure to convert its Sishen mineral rights, it is estimated that AMSA was paying around $30/t for its iron-ore from KIO.  The termination triggered an arbitration process, which was now getting under way, following initial delays. But the escalation in the dispute had also resulted in direct intervention by government, which is keen to secure an iron-ore deal that ensures a competitive steel industry that then also passes those benefits onto South African steel consumers – an arrangement that had never materialised, despite it being integral to the initial 2001 unbundling agreement, which ultimately saw Iscor split into AMSA, KIO and Exxaro.  CEO Nonkululeko Nyembezi-Heita said that, in view of the interim agreement, the company would, with effect from August 01, “charge a single all-in price, reflecting the higher cost of iron-ore, rather than a separate surcharge as had been charged previously. “ArcelorMittal South Africa’s customers have been informed of this revision in its commercial policy.”  She added that the extra amount that was now due and payable to the Sishen Iron Ore Company (SIOC) exceeded the funds that were raised through the surcharge over the last few months. “Therefore, these accumulated surcharge funds and the shortfall will be paid over to SIOC,” she said, but stressed that the interim agreement had “no bearing” on the arbitration process, nor on AMSA’s conviction that the supply agreement remained legally valid and binding. Outgoing FD of ArcelorMittal SA Kobus Verster said that all the proceeds from the sur-charge would be paid over to SIOC. Some R100-million had been raised since the intro-duction of the sur-charge, which represen-ted about 70% of what was now due to SIOC under the interim agree-ment.  Engineering News