Kumba, ArcelorMittal SA price row continues

Kumba Iron Ore says it has still not reached agreement with ArcelorMittal South Africa over an iron ore pricing dispute, posing risks to its commercial interests.

Sishen Iron Ore Company, a subsidiary of Kumba Iron Ore, and ArcelorMittal SA have failed to reach an agreement on interim iron ore prices.

Kumba said this was in spite of "extensive negotiations" over the past five months between the parties.

This followed a dispute resulting from ArcelorMittal SA's failure to apply to convert its 21.4 percent right in the Sishen mine to a new-order mining right by April 30, which led Kumba to cancel a cheap iron ore supply agreement with ArcelorMittal. The matter is currently under arbitration.

"Mittal has, to date, unfortunately rejected all of the reasonable alternatives proposed by the SIOC."

During this time, the SIOC had continued to deliver iron ore to Mittal - approximately 337,402 tons to Saldanha plant and 1,115,180 tons to the inland plants between March 1 and June 30.

This was despite the fact that Mittal had refused to pay the invoiced price and instead had simply remitted cost plus three percent to the SIOC.

"As a result, there is considerable commercial risk to the SIOC and its shareholders if it continues to supply iron ore to Mittal without agreement on terms of supply."

Kumba said on July 5, the SIOC delivered a final offer to Mittal which required Mittal, by close of business on July 15, to accept one of two proposals to govern the supply of iron ore for the interim period.

In the first proposal Mittal would pay the "cost plus three percent" portion of the price directly to the SIOC, with the differential between the cost plus price and the actual market price being paid into an interest-bearing escrow account.

In the second proposal Mittal would pay to the SIOC a price of US50 per ton free on rail deliverable to Saldanha Steel plant, and US80 per ton free on rail deliverable to Mittal's inland plants.

Kumba added the SIOC had advised Mittal, that failing acceptance of either of these proposals within the stipulated period, as from August 1 this year, for the duration of the interim period, the SIOC would only be prepared to load trains destined for Mittal's plants under certain conditions.

Kumba stipulated that at least 48 hours before the intended loading, payment had to be made for the consignment, plus payment of the accumulated amounts due for iron ore delivered between March 1 and July 31 (pay and take basis).

"On July 15, 2010 Mittal advised the SIOC that neither of these proposals had been accepted and in view of this, the SIOC will adopt this pay and take basis in relation to the supply of iron ore to Mittal from the Sishen mine from August 1.

ArcelorMittal SA said it had been informed by Kumba that it would cease supplying iron ore to the steelmaker within two weeks, unless ArcelorMittal SA agreed to certain terms and conditions.

"I'm profoundly disturbed with Kumba's decision 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," the company's CEO Nonkululeko Nyembezi-Heita said in a statement.

"At this stage, I am expecting that about 3000 to 4000 jobs will be affected."

While ArcelorMittal had been seeking in good faith to reach a reasonable pricing compromise pending the outcome of the arbitration, Kumba had continued to hold the threat of cessation of supply over its head, she said.

"Kumba's decision to halt iron ore supply is irrational, economically motivated and has completely undermined the possibility of achieving a final agreement."