Embattled South African steel producer ArcelorMittal South Africa, which requested the JSE to suspend trading in its shares until Wednesday after Sishen Iron Ore Company (SIOC) "cancelled" a favourable supply deal, has confirmed with Engineering News Online that its steel prices would remain unchanged in March.

This was the fourth consecutive month that Africa's largest steel producer had decided to roll over its prices, which meant that domestic price levels remained identical to those set back in November 2009.

In November, the steel group made its first cuts in prices since July, a point at which domestic selling prices began recovering from their precipitous recession-linked declines of late 2008 and early 2009. Prior to July, the price of some steel products sold domestically fell by as much as 60% from the record levels achieved during the first half of 2008.

However, some observers have insisted that the initial increases ran well ahead of the recovery, owing primarily to the fact that the strengthening rand should have prevented any immediate increases, despite price rises in the rest of the world.

ArcelorMittal South Africa sets its prices after analysing domestic selling prices in four markets (the US, Germany, Brazil and China) and then adjusting these to its expectations for the South African currency for the forthcoming month. The South African currency was one of the best performing in the world during 2009, and has shown continued resilience during the first month of 2010.

Besides confirming the March pricing position, spokesperson Marion Green-Thompson also told Engineering News Online that the group was in possession of "normal inventory levels" of two months, but that these did not represent a stockpile.

"The company has approximately two months of inventories at the plant and we have additional supplies that have been paid for, still to be despatched from Thabazimbi," Green-Thompson explained, adding that this would add a further 800 000 t to its iron-ore position.

Kumba Iron Ore (KIO), the Anglo American subsidiary that holds about 74% of SIOC, indicated on Friday that ArcelorMittal South Africa's failure to convert its "21,4% undivided share of the mineral rights to the Sishen mine", as required in terms of the Mineral and Petroleum Resources Development Act, meant that SIOC was no longer obliged to supply iron-ore on the basis of the "cost plus 3%" supply deal.

It, thus, notified the steel group that it would be "cancelling" the iron-ore supply agreement, concluded between the companies in 2001, with effect from March 1, 2010.

The steel group's decision to hold prices could be seen as part of a strategy to secure support for its position with the South African government.

However, a major trust deficit has developed between the steel company and the Department of Trade and Industry (DTI), owing to the fact that ArcelorMittal South Africa allegedly reneged on the so-called "developmental pricing" deal struck in 2001, at the time of the unbundling of Iscor into separate iron-ore and steel companies.

GOVERNMENT MONITORING DEVELOPMENTS

Engineering News Online reported on Saturday that the South African government would seek urgent meetings with KIO, Anglo American and ArcelorMittal South Africa to understand the implications of a possible move to commercial pricing.

In fact, the DTI put out a statement on Monday indicating that, while it was a "commercial dispute", government would "carefully monitor" developments and assess the implications for the broader economy.

"This will form the basis for engagements the DTI will make at a later stage," the department said in a statement.

It was also indicated that Trade and Industry Dr Rob Davies might not be directly involved in these discussions, with the department noting that he was on a mission to the UK during the first week of March. Engineering News Online could not immediately ascertain whether Davies might attempt to meet with Anglo American and the bigger ArcelorMittal Group while in the UK.

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