Africa’s largest steel producer ArcelorMittal South Africa would roll over its prices in September in line with the price stablisation that was occurring in other markets around the world and despite continuing strong domestic demand, underpinned by the country's infrastructure boom.

CEO Nonkululeko Nyembezi-Heita said that, given the strong demand, which had seen the company swinging a record 88% of its sales to the domestic market in the past six months, the future price trajectory would depend materially on price movements in the seven markets against which the company benchmarked domestic prices, as well as movements in the local currency.

The steel giant had raised prices consistently on both flat and long steel products from January until August, making the roll over in September a significant departure from the trend. However, this would be of little comfort to steel consumers, who have experienced steel-price increases of between 70% and 80% for the first half of 2008.

ArcelorMittal South Africa itself realised only a 26% increase in prices for the six months ended June 30, but this was still sufficient to help it increase earnings by 45% to R4,6-billion from the R3,1-billion earned in the corresponding period during 2007. This was also despite a 7% fall in sales, arising mainly due to the fact that the group had a significant amount of capacity out for rebuilds.

In fact, CFO Kobus Verster reported that the various furnace rebuilds, as well as disruptions on the back of power shortages, had resulted in an accumulated production loss of 715 000 t for the period. Some 120 000 t of that was directly attributable to the electricity disruptions.

What could bring some relief to steel consumers in the coming months would be a continued strengthening of the rand, which has recouped some of its losses over the last couple of weeks. In fact, the local unit reached a six-month high against the dollar on Tuesday, when it gained 2% on the day and traded at an intraday high of R7,39, a level last achieved in January. The unit hit a six month low of R8,18 against the dollar on March 20, and traded slighly weaker at aound R7,40 to the dollar on Wednesday.

Nyembezi-Heita said on Wednesday that the company, which was currently appealing a finding by the Competition Tribunal that it had been guilty of charging excessive prices on flat steel products, was formulating domestic prices in what she described as a “fair" pricing formula and implementing price changes in a “disciplined way”.

She explained that the group was not deviating from its model of benchmarking its prices against domestic selling prices in a range of economies around the world and was adjusting this mainly for exchange-rate variations. But it also had some qualitative elements determining the way adjustments were made. Nyembezi-Heita claimed that this discipline would be key in its efforts to prove to the Department of Trade and Industry (DTI) that its pricing model was not only fair, but also a material deviation from import-parity pricing (IPP).

Speaking with Engineering News Online on the sidelines of the group’s results presentation, she revealed that discussions had resumed with the DTI over an appropriate pricing model, and said that she was committed to ensuring closure to the dispute as soon as possible and probably before the end of 2008.

The DTI had objected to what it perceived to be as ArcelorMittal’s unilateral adjustment to its pricing methodology and had also raised questions about whether there was indeed a material difference between the company’s basket model and IPP. It was also unhappy with the lack of transparency around some of the adjustments.

However, officials had also indicated a willingness to continue with a benchmarking approach, as long as its make-up of the basket was agreed jointly and that there was greater transparency in the way it was applied and implemented.

Nyembezi-Heita said that the engagement with DTI had resumed in the last quarter and that she was convinced that “we are not going to be terribly far apart for much longer”.

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