BETH SHIRLEY

Industry Correspondent

ARCELORMITTAL SA’s plans to scale back output in response to its pricing dispute with Kumba Iron Ore would have serious implications for steel industry players, Trade and Industry Minister Rob Davies said yesterday.

His views were echoed by industry analysts who said packaging and vehicle manufacturers were among those that would be hit hard if Mittal limited steel supplies and hiked prices.

The move could cause job losses and higher inflation as well as decrease profits for downstream industries, a leading steel analyst said.

“ArcelorMittal’s choice would have grave effects, ranging from significant downtime and loss of production, job losses, decline in exports, the increase of the steel price and pressure on consumers,” Mr Davies said.

“Furthermore, the commercial issue between these two parties is not confined to them only, but to the industrial sector and the economy as a whole,” he said.

The industry in particular had only just emerged from the recession and increased steel prices due to poor supply would “decimate” new vehicle sales.

Hennie de Clerq of the South African Institute of Steel Construction said there was growing concern over the stability of the local steel industry. He said that the knock-on effects of higher prices for iron ore included rising export prices, with tremendous pressure on steel end-users.

Mittal has threatened to close its Saldanha plant in response to the spat with Kumba.

ArcelorMittal SA CEO Nonkululeko Nyembezi-Heita said that closure would have devastating effects on the economy.

“I’m profoundly disturbed with Kumba’s decision (to halt iron-ore supply to ArcelorMittal) as it will have a wider impact on the economy of this country, and will result in definite job losses in our business and the downstream industries. At this stage, I am expecting that about 3000 to 4000 jobs will be affected,” Ms Nyembezi-Heita said.

Saldanha Works is a largely export-focused plant and is in close proximity to the deep-sea port of Saldanha. The plant produces about 1,2-million tons of steel a year.

The proposed closure of this plant has resulted in Mittal entering into negotiations with workers and the National Union of Metalworkers of SA to minimise effects of the job losses.

Mittal spokesman Themba Hlengani said that the situation arising from the dispute with Kumba did not offer many alternatives and that the company was in a difficult position.

But the union had lambasted Mittal’s announcement to shut down the plant, saying it was “unacceptable”.

The dispute between the two companies arose in March when Kumba changed its terms of supply to Mittal from cost price plus 3% to “commercial terms” with effect from July 1.

Mittal said its pricing policy would be affected by the current dispute with Kumba.

“As we understand the current position … (Kumba) believes that it is no longer bound to supply ore at the contractually agreed price of cost plus 3% and instead claims (it) is entitled to charge ArcelorMittal a price derived from the international spot price for iron ore,” Ms Nyembezi-Heita said.

In May Mittal introduced a surcharge on steel sold locally to make up partly for this shortfall. It supplies about 70% of the country’s steel.

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Source: Business Day