ArcelorMittal South Africa Ltd. said it will import iron ore should it fail to renegotiate a price deal with Anglo American Plc’s Kumba Iron Ore unit, which sees the steelmaker paying 60 percent more than current market rates.
The companies agreed in November 2013 that Kumba will sell as many as 6.25 million metric tons of iron ore annually to the local unit of the world’s largest steelmaker, known as AMSA, at the cost of production plus a 20 percent margin. Prices have since declined 61 percent amid a glut in supply as the largest producers including Vale SA and Rio Tinto Plc increased output.
AMSA paid 1.04 billion rand ($82 million) more for ore in the nine months through June than it would have if it bought outside its arrangement with Kumba under spot prices, Chief Executive Officer Paul O’Flaherty said at a presentation in Johannesburg Friday.
“If you were in our shoes, would you continue to buy from Kumba?,” O’Flaherty said. “We will, either way, pursue lower iron-ore prices, with or without Kumba.”
AMSA saved more than 25 billion rand through its supply agreement with Kumba from 2001 to 2014, Yvonne Mfolo, a spokeswoman for the Pretoria-based iron-ore producer, said in an e-mailed response to questions.
Significant Benefits
“During times of high iron-ore prices AMSA, has derived significant benefits from Kumba,” Mfolo said. “Kumba continues to believe that over the life of the mine, the agreement will be beneficial to AMSA.”
AMSA will in August receive a test shipment of ore for its plant at Saldanha Bay in the Western Cape province, Willem Nel, the company’s general manager for procurement, told reporters. Should talks with Kumba fail, imports will be used for the facility’s total quarterly requirement of 360,000 tons from October, Nel said.
AMSA is in talks with the government for tariffs on subsidized steel imports from China as the company warns that its Vereeniging plant, South Africa’s oldest steelworks, may face closure, risking 1,200 jobs. The company has reported losses for four years amid weakening demand and rising operating costs.
“Rome is burning,” O’Flaherty said Friday. “We need action and we need it fast.”
AMSA will commit to supply cheaper steel to South African customers should the government adhere to its tariffs request, O’Flaherty said.
ArcelorMittal South Africa dropped 1.8 percent to 15.18 rand by 3:24 p.m. in Johannesburg, paring its increase in July to 25 percent. Kumba declined 0.6 percent to 108.67 rand, extending this month’s decline to 28 percent.
Source: Bloomberg
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