ArcelorMittal South Africa (ArcelorMittal SA) has announced that it will impose a surcharge on customers to partly offset higher iron ore prices from the Sishen mine, which is operated by Kumba Iron Ore Ltd. Kumba last month stated that it would stop supplying iron ore from Sishen at three percent above cost under an agreement signed in 2001, after ArcelorMittal failed to meet a government deadline to renew mining rights on its 21.4 percent interest in Sishen.
Expressing its belief in the validity of the agreement signed in 2001, ArcelorMittal said it will continue to export steel in the short term. However, the company said that this will not be profitable taking into account iron ore input costs as claimed by Sishen Iron Ore Company (SIOC), as well as current steel prices. Company management will continue to review the profitability of operations and, if necessary, adjust the commercial policy and production levels, which may necessitate plant closures.
South Africa's Department of Mineral Resources had informed ArcelorMittal in writing on March 17, 2010 that its 21.4 percent undivided share of its old order right has ceased to exist with effect from May 1, 2009.
Furthermore, the South African Ministry of Trade and Industry released a statement on March 30, saying that it is of the view that the surcharge in question is unjustifiable on a number of grounds. The ministry said that ArcelorMittal SA has committed a grave commercial error in failing to convert its old order mining rights to new order mining rights by the cut-off date prescribed in the Mineral and Petroleum Resources Development Act.
"The announcement of an additional iron ore surcharge on steel products signals that the
South African economy is expected to bear the cost of this commercial error, which in
turn will hamper our industrialization efforts," reads the ministry's statement.
The ministry also said that it will request the Competition Commission to investigate ArcelorMittal SA's conduct on the grounds of potential breaches of the Competition Act including abuse of dominance.