The world's largest steelmaker ArcelorMittal has stated that the movement of iron ore prices towards the spot market and the iron ore joint venture in process between Australian iron ore giants Rio Tinto and BHP Billiton is likely to put its business in a negative position.
"Volatility in the prices of raw materials, energy and transportation, including mismatches between trends in prices for raw materials and steel, as well as limitations on or disruptions in the supply of raw materials, could adversely affect ArcelorMittal's profitability," the company's 20F annual report for 2009 for the US Securities and Exchange Commission said.
The report pointed out that despite having its own captive resources of iron ore, ArcelorMittal still obtains a significant portion of its raw materials requirements under long-term supply contracts such as with the Brazilian mining company Vale. "Should raw materials suppliers move toward sales based on spot prices rather than long-term fixed price contracts, steel producers would face increased exposure to production cost and price volatility, which may in turn reduce their access to reliable supplies of raw materials," the steel giant said.
"The raw materials industry is highly concentrated and suppliers in recent years have had significant pricing power," the report stressed, criticizing the announced BHP Billiton-Rio Tinto joint venture. "Further consolidation among suppliers - for example, the announced iron ore joint venture between mining companies BHP Billiton and Rio Tinto - would exacerbate this trend," ArcelorMittal indicated.