May 04, 2010
Kumba considers terminating supply to ArcelorMittal SA, as iron-ore dispute heats upBack
© Reuse this
In a note to shareholders, the JSE-listed miner said that, unless there was urgent resolution on an interim pricing and payment mechanism, the basis upon which it would continue to supply iron-ore to the steel producer could be affected.
KIO did not immediately indicate a timeframe for reaching such an agreement, but a spokesperson told Engineering News Online that the time period should not exceed eight weeks.
The miner also did not immediately elaborate on what options it was considering for the 6,25-million tons that its supplies yearly to AMSA from its 74%-held Sishen Iron Ore Company (SIOC). However, KIO stressed that it did indeed have "other options to sell the ore".
"We have an agreement with Transnet to deliver an extra four-million tons a year in 2010 and 2011 charging a 'super tariff'. We cannot discount the possibility that, if we cannot reach agreement, a last resort would be to terminate supply," the spokesperson told Engineering News Online.
However, she also stressed that KIO did not believe it was in anyone's interests to stop supply "and we are attempting to do all in our power to avoid such an outcome".
"We have made extensive efforts to come to an agreement with AMSA and have been unable to do so," the spokesperson said.
In its statement to the stock exchange, KIO strongly denied that it had told AMSA that it would continue to invoice on the basis of cost-plus 3% until the dispute had been resolved, as had been stated by the steel producer in its own April 29, 2010, notice to that market.
AMSA also indicated in the same statement that it had raised a contingent liability reflecting the "price derived from an export-parity principle and the contractual cost-plus 3% price, in the event SIOC prevails in the arbitration".
"That statement is incorrect," KIO said.
Instead, the miner argued that its announcement of April 19, 2010, reflected the "true position": "Namely that SIOC required AMSA to accept its interim proposal that AMSA pay the contractual price (cost-plus 3%) to SIOC and the difference between that price and the interim price proposed by SIOC into escrow, or provide a suitable guarantee for its payment in the event of SIOC being successful in the arbitration".
KIO told Engineering News Online that the "contingent liability" would not suffice as a guarantee.
However, AMSA spokesperson Julian Gwillim said that the JSE-listed steel producer stood by its statement of April 29, 2010, and would not enter into negotiations with KIO on the merits of the dispute through the media.
The two companies have been in dispute over the future pricing of iron-ore flowing from the Sishen mine since February 5, when SIOC notified AMSA that it was cancelling a favourable supply deal, struck in 2001, on the basis that AMSA had failed to convert its 21,4% undivided share of the Northern Cape mine in line with the demands of the Mineral and Petroleum Resources Development Act.
SIOC began invoicing AMSA on commercial terms as from March, and AMSA CFO Kobus Verster revealed last week that the difference between the the old agreement and the new invoice was $100/t, with 350 000 t having been supplied during the month.
AMSA has also started charging South African steel consumers a controversial R600/t-plus surcharge as from May 1, 2010, in a bid to partially offset the impact of the rise in iron-ore costs. The proceeds would be recorded as a liability in the group's financial accounts and would be returned to consumers should AMSA prevail in its arbitration dispute with KIO.
The Department of Trade and Industry has lodged a complaint of abuse of dominance over the surcharge with the Competition Commission, while consumers are up in arms over what appears to be an attempt by AMSA to recoup costs associated with its own corporate misjudgement.
AMSA has also confirmed with Engineering News Online that it will increase steel prices by between 2% and 17% as from June 1, 2010 - news that was greeted with anger by steel consumers.
Edited by: Creamer Media Reporter© Reuse this Comment Guidelines (150 word limit)
Other Metals News
Recent Research Reports
Steel 2015: A review of South Africa's steel sector (PDF Report)
Creamer Media’s Steel 2015 report provides an overview of the key developments in the global steel industry and particularly of South Africa’s steel sector over the past year, including details of production and consumption, as well as the country's primary carbon...
Projects in Progress 2015 - First Edition (PDF Report)
In fact, this edition of Creamer Media’s Projects in Progress 2015 supplement tracks developments taking place under the Renewable Energy Independent Power Producer Procurement Programme, which has had four bidding rounds. It appears to remain a shining light on the...
Electricity 2015: A review of South Africa's electricity sector (PDF Report)
Creamer Media’s Electricity 2015 report provides an overview of State-owned power utility Eskom and independent power producers, as well as electricity planning, transmission, distribution and the theft thereof, besides other issues.
Construction 2015: A review of South Africa’s construction sector (PDF Report)
Creamer Media’s Construction 2015 Report examines South Africa’s construction industry over the past 12 months. The report provides insight into the business environment; the key participants in the sector; local construction demand; geographic diversification;...
Liquid Fuels 2014 - A review of South Africa's Liquid Fuels sector (PDF Report)
Creamer Media’s Liquid Fuels 2014 Report examines these issues, focusing on the business environment, oil and gas exploration, the country’s feedstock supplies, the development of South Africa’s biofuels industry, fuel pricing, competition in the sector, the...
Water 2014: A review of South Africa's water sector (PDF Report)
Creamer Media’s Water 2014 report considers the aforementioned issues, not only in the South African context, but also in the African and global context, and examines the issues of water and sanitation, water quality and the demand for water, among others.
This Week's Magazine
Forest products group Sappi has confirmed the selection of its 25 MW biomass-to-power project, to be erected at its Ngodwana mill, in Mpumalanga, as a preferred bidder under the South African government’s Renewable Energy Independent Power Producer Procurement...
Information and communications technology (ICT) distributor DCC is making Windows- and Android-operating systems tablets available through retailers and education equipment suppliers to provide school children with affordable, high-performance education tools. The...
Another cement manufacturer is set to enter the Ugandan market, raising hopes that prices will come down and spur growth in the construction industry. National Cement, a Kenyan manufacturer, has unveiled plans to invest $195-million in a new manufacturing plant in...
With growth rates exceeding that in the developed world – at an average of between 4% and 5% between 2002 and 2014 – African countries provide investors with ample reason to tap into booming consumer demand says Manufacturing Circle executive director Coenraad...
The South African Chamber of Commerce and Industry’s (Sacci’s) Business Confidence Index (BCI) decreased by 3.7 index points month-on-month to 89.1 in March.