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
South African pump manufacturer Hazleton Pumps International took top honours in the Most Innovative Company and Customer Service of the Year categories of the Steel and Engineering Industries Federation of Southern Africa’s (Seifsa’s) Awards for Excellence, on...
Stainless steel stockist and distributor NDE attributes its business success to catering to a diverse range of customers.
Tools company Dormer Pramet has developed a new range of chipbreaker inserts with positive NF geometry for the process of turning stainless steel.
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
While strongly welcoming the promulgation of the new Part 101 of South Africa’s civil aviation regulations, governing the commercial operation of civil remotely piloted aircraft (RPAs) in South Africa, the Commercial Unmanned Aircraft Association of Southern Africa...
LSM Distributors has contracted engineering consultancy WSP | Parsons Brinckerhoff Africa to undertake the R100-million restoration of the 54-year-old Kyalami racetrack, situated in Midrand. The restoration will assist in re-establishing it as a venue for...
South African Defence Minister Nosiviwe Mapisa-Nqakula has expressed the hope that the defence budget will be significantly increased over the next five years. She did so while addressing the media in her recent budget vote media briefing. The 2015/2016 defence...
The African Development Bank (AfDB) has been an implementing agency for the Global Environment Facility (GEF) since 2008. The relatively young portfolio has 28 projects over 30 countries on the continent according to the 2014 AfDB and GEF annual report released...
Investment in South African youth through apprenticeships and learnerships will not only create direct benefits for businesses but will also contribute significantly to job creation and socioeconomic transformation in the country.