Home > Market change > ArcelorMittal to shut Saldanha plant

ArcelorMittal to shut Saldanha plant

July 20, 2010

“ArcelorMittal South Africa Ltd., a unit of the world’s largest steelmaker, said it will close its Saldanha plant and cut all steel exports after failing to reach an interim iron ore supply agreement with Kumba Iron Ore Ltd.

The plans will affect as many as 4,000 temporary and permanent jobs at the steelmaker and “seriously impact” industries that depend on its output, the company said in a statement today. The ArcelorMittal unit employs 10,000 workers.”

Source: Bloomberg, July 16, 2010

Observations:

  • ArcelorMittal had an agreement with the previous owner of the mine supplying the iron ore to buy the ore from Sishen mine at 3% above production costs. Kumba has decided to end this agreement, but ArcelorMittal does not agree.
  • The price of iron ore agreed upon in the contract was $50 for the Saldanha plant, which is about half of the market price in the seaborne market.

Implications:

  • Most likely the announcement to shut down the plant is purely a threat. Importing ore from any other location to the mine would be much more costly than using Kumba’s ore. As ArcelorMittal supplies 70% of South Africa’s steel demand, the government likely to undertake action in order to satisfy both Kumba and ArcelorMittal and not lose jobs.
  • As the international struggle for iron ore intensifies, ArcelorMittal will probably agree on a new long term contract with some build-in price flexibility at higher cost that the former contract, but securing long term supply.

©2010 | Wilfred Visser | thebusinessofmining.com

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