ArcelorMittal to close Saldanha steel plant

July 19, 2010 by: admin

Within hours of Anglo American-controlled Kumba Iron Ore (KIO) dropping the bombshell that it wanted payment in advance for higher interim iron-ore prices, South Africa’s largest steelmaker ArcelorMittal (AMSA) announced that it was taking immediate steps to close its Saldanha export steel works and to cut domestic steel production drastically, which puts 3 000 to 4 000 jobs at risk, and which leaves the South African government “gravely concerned”.

After five months of barren negotiations between JSE-listed KIO and AMSA – which chose not to take up a government mediation offer – the saga took a new turn at the weekend when KIO insisted that AMSA, from August 1, pays KIO subsidiary, Sishen Iron Ore Company (SIOC), in advance for iron-ore supplies, and settles outstanding debts brought about by the higher interim iron-ore prices that KIO has been unilaterally imposing.

South Africa’s Department of Trade and Industry called on both parties – “as a matter of urgency” – to resolve the dispute in a manner that did not lead to negative economic circumstances for the country and said it continued to be available to mediate.

A meeting between Trade and Industry Minister Dr Rob Davies, KIO and AMSA is reported by Bloomberg News to be on the cards.

But AMSA said that, although supplies of 2,5-million tons of iron-ore a year would continue from SIOC’s Thabazimbi iron-ore mine at the cost-plus-3% price, and that scrap metal feedstock would also continue to be supplied, those inputs would be insufficient to meet current sales orders and future steel demand.

As a consequence, AMSA CEO Nonkululeko Nvembezi-Heita said that AMSA had initiated plans for:

  • the immediate closure of AMSA’s Saldanha export steel plant at the coast;
  • the curtailment of all exports; and
  • a drastic reduction in steel production for South Arica’s domestic market, resulting in market allocations.

A spokesperson told Engineering News Online that AMSA, which employs 10 000 people, had already begun communicating the looming job losses with labour unions.

Nyembezi-Heita said: “I’m profoundly disturbed with Kumba’s decision as it will have a wider impact on the economy of South Africa. It will result in definite job losses in our business and the downstream industries. At this stage, I am expecting that about 3 000 to 4 000 jobs will be affected.”

SIOC had earlier requested AMSA to pay into an escrow account the difference between the disputed “cost-plus-3%” portion of the price and the market price, but AMSA did not take up the offer.

AMSA did, however, impose a R600/t steel surcharge to cover the higher price from May 1.

KIO made a second July 15-deadline discounted-price offer to AMSA, which the steelmaker again did not take up.

Now KIO, headed by CEO Chris Griffith, said that its SIOC would only load trains destined for AMSA’s plants on condition that payment – based on its second discounted-price proposal – was made on a “pay-and-take” basis. The discounted price SIOC offered was $50/t for AMSA’s Saldanha coastal steel plant and $80/t for its inland Vanderbijl and Newcastle steel plants.

That would apply from August 1, from which date AMSA would have to prepay at least 48 hours in advance.

By that date, AMSA would also have to have paid up the accumulated amounts due for the iron-ore delivered between March 1 and July 15 at a higher interim price.

AMSA said that, while the $50/t would have been sufficient to keep the Saldanha plant at a financial break-even point, the $80/t would result in the possible closure of its inland steel works.

The $50/t amounted to a 69% increase over the cost-plus-3% iron-ore price and the $80/t price an increase of 171%.

Nyembezi-Heita added that steel prices had declined by $100/t since AMSA’s interim pricing negotiations had begun with KIO in March.

South Africa’s Department of Trade and Industry said in a media release that it was “gravely concerned” about the KIO announcement and that the dispute between KIO and AMSA should not result in iron-ore previously processed locally being exported in unbeneficiated form.

The department also did not want to see any disruption of local steel production nor did it want the dispute to result in the domestic steel price rising above internationally uncompetitive levels.

During the negotiation period, SIOC has continued to deliver iron-ore to AMSA, but the steelmaker has not paid the invoiced price reflecting the higher interim price, but has instead continued only to remit the cost-plus-3% price.

SIOC delivered 337 402 t of iron-ore to AMSA’s Saldanha plant and 1 115 180 t of iron-ore to AMSA’s inland plants from March 1 to June 30.

“There is considerable commercial risk to SIOC and its shareholders if it continues to supply iron-ore to AMSA without an agreement on the terms of supply,” KIO said in a Stock Exchange News Service announcement.

KIO notified AMSA in February that it was no longer entitled to receive 6,25-million tons a year of Sishen iron-ore at the cost-plus-3% arrangement because of AMSA failing to convert its old-order mining rights to new-order mining rights.

KIO attempted to acquire AMSA’s former rights, but these were awarded instead to Imperial Crown Trading, which KIO is contesting in the North Gauteng High Court.

The cost-plus-3% agreement has been in place since 2001 based on AMSA’s now-forfeited ownership of an undivided 21,4% interest mineral rights at the Sishen mine, which KIO contends became inoperative from May 1, 2009 – a matter which has been referred to arbitration.

However, AMSA has yet to file its answering papers to SIOC’s statement of claim.

An AMSA spokesperson told Engineering News Online that the filing of its answering papers was now imminent and that the company’s arbitrator had been appointed.

Pending the outcome of the arbitration, SIOC has invoiced AMSA at the higher interim price price and AMSA has charged South African steel consumers R600/t more for steel.

Meanwhile, South Africa’s Competition Commission is giving “priority attention” to dealing with AMSA’s unilateral imposition of the R600-plus surcharge on every ton of steel sold domestically.

A preliminary investigation is under way into the possibility that the surcharge may constitute an abuse of dominance.

Edited by: Creamer Media Reporter
Source engineeringnews.co.za

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