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Kumba to Halt Iron Ore Supply to ArcelorMittal
Jul. 19, 2010 ArcelorMittal and Sishen Iron Ore Co. Ltd. (SIOC), a subsidiary of Kumba Iron Ore Ltd., have failed to conclude an interim price arrangement for the supply of iron ore.
As a result, SIOC has informed ArcelorMittal that it plans to cease supplying iron ore to its steel plants within two weeks unless ArcelorMittal agrees to the terms and conditions that SIOC requires to govern the supply of ore.
The interim arrangement would have governed the terms of iron ore supply until the conclusion of an arbitration process that is currently underway. The aim is to resolve a dispute in terms of the agreement that the parties entered into in 2001.
SIOC requested that ArcelorMittal pay US$50 per tonne of iron ore for the Saldanha plant (which was agreed to in principle), and US$80 per tonne of iron ore for ArcelorMittal’s inland facilities (which was not settled). The prices offered would escalate by 10% every six months until September 1, 2011; ArcelorMittal then would be expected to pay SIOC the prevailing market price.
ArcelorMittal says that the prices offered would have allowed it to continue operating the Saldanha plant at around break-even levels, but would make exports from inland facilities largely unprofitable.
The SIOC offer of US$50 per ton and US$80 per ton of iron ore amounts to increases of 69% and 171%, respectively, over the cost plus 3% amounts to which Kumba is contractually entitled, ArcelorMittal notes.
The company further states that it is not possible to agree to the prices being demanded by SIOC, whether on an interim basis or otherwise, which would threaten the viability of its business.
Iron ore supplies will continue from SIOC’s Thabazimbi mine, scrap and other suppliers, but ArcelorMittal notes that these will not be sufficient for it to meet current sales orders and future steel demand.
ArcelorMittal’s immediate plans include:
- Closure of the Saldanha plant
- Curtailment of all exports
- A material reduction in domestic market production, resulting in market allocations
These actions will result in about 3000 to 4000 job losses, according to ArcelorMittal, and will seriously impact downstream industries.