ArcelorMittal S.Africa Shuts Mill as Kumba Talks Fail

July 16 (Bloomberg) — 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.

Saldanha is situated in one of South Africa’s poorest areas, on barren land north of Cape Town, and was opened in 1998 by formerly state-owned Iscor Ltd. and the Industrial Development Corp., the government development agency. Iscor’s steel business, which was renamed ArcelorMittal South Africa, took ownership of the plant after Iscor was split into separate steel and mining companies.

A pact agreed as part of the split entitled ArcelorMittal South Africa to buy iron ore, a steelmaking ingredient, from the mining group’s Sishen mine at 3 percent above production costs. A dispute erupted in February after Kumba, which now controls Sishen, canceled the nine-year-old supply pact. The dispute is now in arbitration.

The whole of the Saldanha area “will be negatively affected,” said Abri Du Plessis, chief investment officer of Gryphon Asset Management, by phone from Cape Town today.

ArcelorMittal South Africa, which gets two-thirds of its ore needs from Kumba, supplies South Africa with about 70 percent of steel requirements.

‘Assessing All Options’

The country’s Department of Trade and Industry said it’s “assessing all options” to ensure the economy isn’t damaged by the dispute and offered to mediate between the parties.

By threatening to close Saldanha, ArcelorMittal South Africa is trying to “soften” the government’s stance toward it, Gryphon’s Du Plessis said. The government “has spent a lot on rail and electricity” in the Saldanha area, he said.

It’s very silly to use “workers as pawns in a commercial dispute,” said Frans Baleni, general secretary of South Africa’s biggest labor group, the National Union of Mineworkers, in a text message. “4,000 jobs plus dependants cannot be made to pay such a huge price.”

South Africa’s unemployment rate rose for a fourth consecutive quarter in the first three months of this year as companies shed jobs while waiting for signs that the recovery in Africa’s largest economy is sustainable.

Prepay for Ore

Earlier, Kumba said that from Aug. 1 it will only deliver ore to ArcelorMittal South Africa if it gets paid for the shipments 48 hours in advance at the rates proposed, and if back payments for ore delivered from March 1 are made.

That came after ArcelorMittal rejected two options put forward by Kumba, either that the steelmaker pay the difference between the original pact and the market price into an escrow account until the dispute is resolved, or that it pays $50 a metric ton for ore supplied to Saldanha on the coast and $80 a ton for Newcastle in KwaZulu-Natal and Vanderbijlpark near Johannesburg.

“It’s not possible for ArcelorMittal to agree to the prices being demanded,” it said in today’s statement. The prices being asked “would threaten the viability” of the steelmaker’s business.

ArcelorMittal South Africa, 46.8 percent-owned by Luxembourg-based ArcelorMittal, produced 8 million metric tons of steel in 2009. Saldanha can produce 1.2 million tons a year according to the company’s website.

Shares in ArcelorMittal South Africa extended losses after the announcement, falling 4.4 percent to 72.04 rand at 4:07 p.m. in Johannesburg. The stock has declined 37 percent since February 26, when Kumba announced that it was ending the supply agreement. Kumba lost 2.48 rand, or 0.8 percent, to 333.02 rand.

–Editors: Alastair Reed, Antony Sguazzin.

News Source: SFGate