Steel firm seeks alternative source as supply dispute goes to arbitration

17 May 2011

17 May 2011 | Lindsay Clark

ArcelorMittal South Africa (AMSA) is in talks with a key supplier to extend an interim agreement set up to secure iron ore shipments.

Kumba Iron Ore and AMSA - part of the world’s largest steel producer - are discussing extending the current interim iron ore supply agreement, which expires in July.

The temporary agreement was established in February 2010, when Kumba, part of mining group AngloAmerican, announced its subsidiary - Sishen Iron Ore Company - would no longer supply iron ore from its mine to AMSA at a cost plus 3 per cent price, but instead planned to charge the steelmaker on commercial terms.

The interim deal was put in place because AMSA had mineral rights to the mine in question. But Kumba claims these have since expired.

A financial statement from AMSA said an arbitration hearing with Kumba has been set for May 2012 and it has now begun discussions to extend the current interim iron ore supply agreement, which runs until July.

Meanwhile, AMSA has “entered into an agreement which could lead to the acquisition of an iron ore resource in the Northern Cape”. The company believes this could supply it with between 2 and 3 million tonnes of iron ore, if regulators approve the deal.

AMSA CEO Nonkululeko Nyembezi-Heita said restocking was driving both international and local steel markets, with a modest increase in underlying steel demand in the South African mining and automotive industry. “There were encouraging signs of higher prices and consumption was also up in emerging markets such as China and India.”

Nyembezi-Heita added that he expected buyers in the domestic infrastructure sector to be active. “With South Africa on the verge of another round of its infrastructure investment cycle led by the power station build programme, transport and water systems, we are cautiously optimistic about the months ahead."

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