South African steel group ArcelorMittal South Africa confirmed on Monday that it would cut tin-plate prices by between 26% and 30% from September 30, 2009.

The decrease, the group said, was in line with an agreement with its key customers in the packaging industry to adjust prices midway through the 2009/10 contract period.

The decision to pursue a midyear adjustment followed on from major criticism of ArcelorMittal South Africa earlier in the year, when it emerged that it had increased tin-plate prices, which were at that stage still adjusted yearly, by 69% to 78%. It justified the move on the basis of the weakening in the rand, which had been one of the world's worst-performing currencies in 2008, and a rise in international tin-plate prices of about 25%.

The criticism, which was initiated by the packaging companies, eventually reached into the top echelons of government, which indicated its concern that the spike might lead to a significant increase in tinned food prices. It was argued that the flow-through effect to poor consumers was particularly concerning, owing to the fact that price of a can could comprise as much as 40% of the price of affordable foodstuffs, such as tinned pilchards.

In fact, Dr Rob Davies, who was at that stage still Deputy Trade and Industry Minister, but who has since been promoted to Minister, called for a "price smoothing agreement" between the packaging industry and the steel group in order to avoid the prospect of further spikes.

The new pricing arrangement meant that tin-plate prices for food and beverage packaging products would be reduced by 30% and 26% respectively from September 30 until the March 31, 2010.

Tin-plate prices, ArcelorMittal said, were calculated according to a long-standing formula that comprised a basket of prices from a number of international markets to which the ruling rand/dollar exchange rate was then applied.

"The adjustments announced today are in terms of a so-called collar adjustment clause between ArcelorMittal South Africa and its customers in the packaging industry, which comes into effect if the basket rand price of tin-plate rises or declines by more than 10% from its current levels," the company explained in a statement.

"The 30% and 26% average reduction in prices reflects the strong performance of the rand over the past six months, whereas international tin-plate prices have been largely steady in the markets tracked by ArcelorMittal South Africa," the group concluded.

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