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ArcelorMittal South Africa Cancels Steel Surcharge After Kumba Supply Deal
ArcelorMittal South Africa Ltd., a unit of the world’s largest steelmaker, will cancel a surcharge on steel products next month after reaching an interim supply agreement with Kumba Iron Ore Ltd. for deliveries of iron ore.
The steelmaker will “charge a single, all-in price, reflecting the higher cost of iron ore, rather than a separate surcharge,” it said in a statement today.
ArcelorMittal South Africa introduced the charge from the start of May after Kumba, which supplies two-thirds of its ore needs, canceled a nine-year-old supply accord through which it bought iron ore at 3 percent above the cost of production.
The charge, which was based on market prices, was scrapped “because we now have a firm price from Kumba,” ArcelorMittal South Africa Chief Executive Officer Nonkululeko Nyembezi-Heita said in a presentation in Johannesburg.
The companies on July 22 reached agreement on an interim supply accord under which the steelmaker will pay $50 a metric ton for ore supplied to its mill on South Africa’s coast and $70 a ton for deliveries to its two inland mills.
“The new prices are being communicated to customers today,” Julian Gwillim, spokesman for the Vanderbijlpark-based steelmaker, said by phone from Johannesburg.
ArcelorMittal South Africa, which is 47 percent-owned by Luxembourg-based ArcelorMittal, is still in arbitration with Kumba over the canceled supply agreement.
‘Sufficient Goodwill’
A resolution may take as long as two years to achieve, Nyembezi-Heita said. “That doesn’t rule out the possibility that a long-term agreement could be reached” sooner, she said.
The government, which is mediating the dispute, has set up an inter-ministerial team to help resolve the issue, involving the departments of trade and industry, mineral resources and economic planning.
ArcelorMittal South Africa, which supplies about 70 percent of the country’s steel needs, threatened to close its Saldanha steel mill, with thousands of job losses, if it were forced to pay market prices for iron ore.
There’s “sufficient goodwill on all sides to try find a solution,” Nyembezi-Heita said.
ArcelorMittal South Africa rose for a seventh day in Johannesburg trading, climbing 1.80 rand, or 2.1 percent, to close at 86.30 rand. The stock has dropped 16 percent this year, cutting the company’s market value to 38.5 billion rand ($5.2 billion).
Earlier, the steelmaker posted first-half net income of 1.78 billion rand, compared with a year-earlier loss of 848 million rand. Third-quarter earnings will decline from the second quarter because of lower international steel prices and higher input costs, the company said.
To contact the reporter on this story: Ron Derby in Johannesburg at rderby1@bloomberg.net
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