Arcelormittal South Africa, Kumba Reach Iron Ore Pact for 2013

Kumba Iron Ore Ltd. (KIO) agreed a one- year deal to supply raw material to ArcelorMittal South Africa Ltd. (ACL), the continent’s largest steelmaker, less than three weeks before the current contract expires.

Kumba, a unit of Anglo American Plc (AAL), will sell a maximum annual volume of 4.8 million metric tons of iron ore from its Sishen mine at a weighted average price of $65 a ton to the steelmaker, the company said in a statement. The pact ensures supply for another year after Kumba canceled a long-term agreement in 2010.

“We committed to reaching an agreement,” Themba Hlengani, a spokesman for ArcelorMittal South Africa, said by phone. The price the company will pay for the ore is the same as in the current contract.

The steelmaker on Aug. 23 said Kumba would continue to supply it with 1.5 million tons of iron ore at below-market prices until Dec. 31. Kumba in March 2010 canceled a 2001 agreement to supply Arcelor with 6.25 million tons of ore a year from the Sishen mine in the Northern Cape.

The new interim pricing agreement will last through Dec. 31 or until the conclusion of the legal processes in relation to the 2001 Sishen Supply Agreement, whichever is sooner, Kumba said.

Cheaper Steel

ArcelorMittal (MT) South Africa faces other challenges as the country’s cabinet this month endorsed measures that seek to cut local steel prices, including the possibility of new export taxes on steel and iron ore.

A group set up by the Department of Trade and Industry in 2010 to study how to put local steel prices into the “lowest quartile” of global levels to spur manufacturing and jobs recommended policies including promoting new steel projects by offering priority access to electricity, the Cabinet said Dec. 6.

Hebei Iron & Steel Group, China’s biggest steelmaker, is leading a group including the Industrial Development Corp. of South Africa to buy Palabora Mining Co.

The Phalaborwa-based company has magnetite resources used in making steel, Mandla Mpangase, a spokesman at Industrial Development Corp., said by e-mail yesterday. The deal secures raw material for South African projects including the IMBS scrap-substitute project being built in Phalaborwa, Mpangase said.

To contact the reporter on this story: Paul Burkhardt in Johannesburg at pburkhardt@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net

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