ArcelorMittal comes to the table

ArcelorMittal South Africa will review its pricing and move away from the import parity pricing mode, says Paul O’Flaherty.

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Johannesburg - ArcelorMittal South Africa would review its pricing and move away from the import parity pricing mode, chief executive Paul O’Flaherty said. (See page 16).

O’Flaherty said the group, the largest steel maker in South Africa, supported key proposed mechanisms to support the embattled steel industry, which would allow companies to operate profitably and incentivise greater efficiency.

O’Flaherty’s assessment of the industry, which is facing a meltdown of commodity prices, is contained in an opinion piece he has penned for Business Report on the industry and measures required to lift it out of the current slump.

In 2010, Kumba unilaterally declared it would no longer supply ore to ArcelorMittal at a rate of cost plus 3 percent, as per a long-standing supply agreement between the companies, stemming from the unbundling of state-owned mining and steel giant Iscor, which had entitled ArcelorMittal to iron ore from Sishen at a rate well below market price.

The agreement

The plan, endorsed by the government, ensured that ArcelorMittal passed on the savings to the local steel industry.

But the agreement fell apart when Kumba in 2010 said the arrangement was not making business sense for it, and a long drawn out dispute ensued, culminating in an agreement three years later that Kumba would sell as many as 6.25 million tons of iron ore annually to ArcelorMittal at the cost of production plus a 20 percent margin.

The agreement also said ArcelorMittal SA would pay one price for iron ore sourced from both the Sishen mine in the Northern Cape and the Thabazimbi mine in Limpopo, instead of the two previous separate price agreements.

In July, the dispute reared its head again when O’Flaherty said ArcelorMittal would import iron ore should it fail to renegotiate a price deal with Anglo American’s Kumba Iron Ore unit, which sees the steelmaker paying 60 percent more than current market rates.

Prices have since declined more than 60 percent amid a glut in supply as the largest producers including Vale and Rio Tinto increased output, as well as the increase of cheap imports from China.

O’Flaherty has said his company has publicly acknowledged its role in some of the negative legacy issues that have been created in the industry and intended to fix these in a responsible manner.

“The overriding story of the South African economy is one of a country that is not reaching, let alone fulfilling, its potential in many areas – the country’s current economic growth, job creation prospects and industrial development efforts are lacklustre,” he said.

BUSINESS REPORT