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ArcelorMittal South Africa to Shut Saldanha Steel Mill as Kumba Talks Fail
ArcelorMittal South Africa Ltd., a unit of the world’s largest steelmaker, said it will close its Saldanha plant and cut all steel exports after failing to reach an interim iron ore supply agreement with Kumba Iron Ore Ltd.
The plans will affect as many as 4,000 temporary and permanent jobs at the steelmaker and “seriously impact” industries that depend on its output, the company said in a statement today. The ArcelorMittal unit employs 10,000 workers.
Saldanha is situated in one of South Africa’s poorest areas, on barren land 109 kilometers (68 miles) north of Cape Town, and was opened in 1998 by formerly state-owned Iscor Ltd. and the Industrial Development Corp., the government development agency. Iscor’s steel business, which was renamed ArcelorMittal South Africa, took ownership of the plant after Iscor was split into separate steel and mining companies.
A pact agreed as part of the split entitled ArcelorMittal South Africa to buy iron ore, a steelmaking ingredient, from the mining group’s Sishen mine at 3 percent above production costs. A dispute erupted in February after Kumba, which now controls Sishen, canceled the nine-year-old supply pact. The dispute is now in arbitration.
The whole of the Saldanha area “will be negatively affected,” said Abri Du Plessis, chief investment officer of Gryphon Asset Management, by phone from Cape Town today.
ArcelorMittal South Africa, which gets two-thirds of its ore needs from Kumba, supplies South Africa with about 70 percent of steel requirements.
‘Assessing All Options’
The country’s Department of Trade and Industry said it’s “assessing all options” to ensure the economy isn’t damaged by the dispute and offered to mediate between the parties. Trade Minister Rob Davies aims to meet both companies on July 19 to discuss the dispute, department spokesman Sidwell Medupe said.
By threatening to close Saldanha, ArcelorMittal South Africa is trying to “soften” the government’s stance toward it, Gryphon’s Du Plessis said. The government “has spent a lot on rail and electricity” in the Saldanha area, he said.
“We reject the plant closure by ArcelorMittal and such comments on jobs borders on being irresponsible,” said Irvin Jim, general secretary of the National Union of Metalworkers of South Africa, which represents half of the steelmaker’s workers.
“Companies must do everything to make sure jobs are maintained,” he said by mobile phone.
Prepay for Ore
South Africa’s unemployment rate rose for a fourth consecutive quarter in the first three months of the year as companies shed jobs while waiting for signs that the recovery in Africa’s largest economy is sustainable.
Earlier, Kumba said that from Aug. 1 it will only deliver ore to ArcelorMittal South Africa if it gets paid for the shipments 48 hours in advance at the rates proposed, and if back payments for ore delivered from March 1 are made.
That came after ArcelorMittal rejected two options put forward by Kumba, either that the steelmaker pay the difference between the original pact and the market price into an escrow account until the dispute is resolved, or that it pays $50 a metric ton for ore supplied to Saldanha on the coast and $80 a ton for Newcastle in KwaZulu-Natal and Vanderbijlpark near Johannesburg.
Threaten Viability
“It’s not possible for ArcelorMittal to agree to the prices being demanded,” it said in today’s statement. The prices being asked “would threaten the viability” of the steelmaker’s business.
ArcelorMittal South Africa, 46.8 percent-owned by Luxembourg-based ArcelorMittal, produced 8 million metric tons of steel in 2009. Saldanha can produce 1.2 million tons a year according to the company’s website.
Shares in ArcelorMittal South Africa declined as much as 5.3 percent to 71.33 rand in Johannesburg trading, its biggest fall in two and half months. The stock closed 4.5 percent weaker at 72 rand at 5:00 p.m. local time. Shares in the steelmaker have declined 37 percent since Feb. 26, when Kumba announced that it was ending the supply agreement.
Kumba shares gained 3.60 rand, or 1.1 percent, to 339.10 rand.
To contact the reporter on this story: Ron Derby in Johannesburg at rderby1@bloomberg.net
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