ArcelorMittal to close Saldanha steel plant

Within hours of Anglo American-controlled Kumba Iron Ore (KIO) dropping the bombshell that it wanted payment in advance for higher interim iron-ore prices, South Africa's largest steelmaker ArcelorMittal (AMSA) announced that it was taking immediate steps to close its Saldanha export steel works and to cut domestic steel production drastically, which puts 3 000 to 4 000 jobs at risk, and which leaves the South African government "gravely concerned".

After five months of barren negotiations between JSE-listed KIO and AMSA – which chose not to take up a government mediation offer – the saga took a new turn at the weekend when KIO insisted that AMSA, from August 1, pays KIO subsidiary, Sishen Iron Ore Company (SIOC), in advance for iron-ore supplies, and settles outstanding debts brought about by the higher interim iron-ore prices that KIO has been unilaterally imposing.

South Africa's Department of Trade and Industry called on both parties – "as a matter of urgency" – to resolve the dispute in a manner that did not lead to negative economic circumstances for the country and said it continued to be available to mediate.

A meeting between Trade and Industry Minister Dr Rob Davies, KIO and AMSA is reported by Bloomberg News to be on the cards.

But AMSA said that, although supplies of 2,5-million tons of iron-ore a year would continue from SIOC's Thabazimbi iron-ore mine at the cost-plus-3% price, and that scrap metal feedstock would also continue to be supplied, those inputs would be insufficient to meet current sales orders and future steel demand.

As a consequence, AMSA CEO Nonkululeko Nvembezi-Heita said that AMSA had initiated plans for:

• the immediate closure of AMSA's Saldanha export steel plant at the coast;
• the curtailment of all exports; and
• a drastic reduction in steel production for South Arica's domestic market, resulting in market allocations.

A spokesperson told Engineering News Online that AMSA, which employs 10 000 people, had already begun communicating the looming job losses with labour unions.

Nyembezi-Heita said: "I'm profoundly disturbed with Kumba's decision as it will have a wider impact on the economy of South Africa. It will result in definite job losses in our business and the downstream industries. At this stage, I am expecting that about 3 000 to 4 000 jobs will be affected."

SIOC had earlier requested AMSA to pay into an escrow account the difference between the disputed "cost-plus-3%" portion of the price and the market price, but AMSA did not take up the offer.

AMSA did, however, impose a R600/t steel surcharge to cover the higher price from May 1.

KIO made a second July 15-deadline discounted-price offer to AMSA, which the steelmaker again did not take up.

Now KIO, headed by CEO Chris Griffith, said that its SIOC would only load trains destined for AMSA's plants on condition that payment - based on its second discounted-price proposal - was made on a "pay-and-take" basis. The discounted price SIOC offered was $50/t for AMSA's Saldanha coastal steel plant and $80/t for its inland Vanderbijl and Newcastle steel plants.

That would apply from August 1, from which date AMSA would have to prepay at least 48 hours in advance.

By that date, AMSA would also have to have paid up the accumulated amounts due for the iron-ore delivered between March 1 and July 15 at a higher interim price.

AMSA said that, while the $50/t would have been sufficient to keep the Saldanha plant at a financial break-even point, the $80/t would result in the possible closure of its inland steel works.

The $50/t amounted to a 69% increase over the cost-plus-3% iron-ore price and the $80/t price an increase of 171%.

Nyembezi-Heita added that steel prices had declined by $100/t since AMSA's interim pricing negotiations had begun with KIO in March.

South Africa's Department of Trade and Industry said in a media release that it was "gravely concerned" about the KIO announcement and that the dispute between KIO and AMSA should not result in iron-ore previously processed locally being exported in unbeneficiated form.

The department also did not want to see any disruption of local steel production nor did it want the dispute to result in the domestic steel price rising above internationally uncompetitive levels.

During the negotiation period, SIOC has continued to deliver iron-ore to AMSA, but the steelmaker has not paid the invoiced price reflecting the higher interim price, but has instead continued only to remit the cost-plus-3% price.

SIOC delivered 337 402 t of iron-ore to AMSA's Saldanha plant and 1 115 180 t of iron-ore to AMSA's inland plants from March 1 to June 30.

"There is considerable commercial risk to SIOC and its shareholders if it continues to supply iron-ore to AMSA without an agreement on the terms of supply," KIO said in a Stock Exchange News Service announcement.

KIO notified AMSA in February that it was no longer entitled to receive 6,25-million tons a year of Sishen iron-ore at the cost-plus-3% arrangement because of AMSA failing to convert its old-order mining rights to new-order mining rights.

KIO attempted to acquire AMSA's former rights, but these were awarded instead to Imperial Crown Trading, which KIO is contesting in the North Gauteng High Court.

The cost-plus-3% agreement has been in place since 2001 based on AMSA's now-forfeited ownership of an undivided 21,4% interest mineral rights at the Sishen mine, which KIO contends became inoperative from May 1, 2009 – a matter which has been referred to arbitration.

However, AMSA has yet to file its answering papers to SIOC's statement of claim.

An AMSA spokesperson told Engineering News Online that the filing of its answering papers was now imminent and that the company's arbitrator had been appointed.

Pending the outcome of the arbitration, SIOC has invoiced AMSA at the higher interim price price and AMSA has charged South African steel consumers R600/t more for steel.

Meanwhile, South Africa's Competition Commission is giving "priority attention" to dealing with AMSA's unilateral imposition of the R600-plus surcharge on every ton of steel sold domestically.

A preliminary investigation is under way into the possibility that the surcharge may constitute an abuse of dominance.

Edited by: Creamer Media Reporter
Source engineeringnews.co.za

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ArcelorMittal to close Saldanha steel plant

Within hours of Anglo American-controlled Kumba Iron Ore (KIO) dropping the bombshell that it wanted payment in advance for higher interim iron-ore prices, South Africa's largest steelmaker ArcelorMittal (AMSA) announced that it was taking immediate steps to close its Saldanha export steel works and to cut domestic steel production drastically, which puts 3 000 to 4 000 jobs at risk, and which leaves the South African government "gravely concerned".

After five months of barren negotiations between JSE-listed KIO and AMSA – which chose not to take up a government mediation offer – the saga took a new turn at the weekend when KIO insisted that AMSA, from August 1, pays KIO subsidiary, Sishen Iron Ore Company (SIOC), in advance for iron-ore supplies, and settles outstanding debts brought about by the higher interim iron-ore prices that KIO has been unilaterally imposing.

South Africa's Department of Trade and Industry called on both parties – "as a matter of urgency" – to resolve the dispute in a manner that did not lead to negative economic circumstances for the country and said it continued to be available to mediate.

A meeting between Trade and Industry Minister Dr Rob Davies, KIO and AMSA is reported by Bloomberg News to be on the cards.

But AMSA said that, although supplies of 2,5-million tons of iron-ore a year would continue from SIOC's Thabazimbi iron-ore mine at the cost-plus-3% price, and that scrap metal feedstock would also continue to be supplied, those inputs would be insufficient to meet current sales orders and future steel demand.

As a consequence, AMSA CEO Nonkululeko Nvembezi-Heita said that AMSA had initiated plans for:

• the immediate closure of AMSA's Saldanha export steel plant at the coast;
• the curtailment of all exports; and
• a drastic reduction in steel production for South Arica's domestic market, resulting in market allocations.

A spokesperson told Engineering News Online that AMSA, which employs 10 000 people, had already begun communicating the looming job losses with labour unions.

Nyembezi-Heita said: "I'm profoundly disturbed with Kumba's decision as it will have a wider impact on the economy of South Africa. It will result in definite job losses in our business and the downstream industries. At this stage, I am expecting that about 3 000 to 4 000 jobs will be affected."

SIOC had earlier requested AMSA to pay into an escrow account the difference between the disputed "cost-plus-3%" portion of the price and the market price, but AMSA did not take up the offer.

AMSA did, however, impose a R600/t steel surcharge to cover the higher price from May 1.

KIO made a second July 15-deadline discounted-price offer to AMSA, which the steelmaker again did not take up.

Now KIO, headed by CEO Chris Griffith, said that its SIOC would only load trains destined for AMSA's plants on condition that payment - based on its second discounted-price proposal - was made on a "pay-and-take" basis. The discounted price SIOC offered was $50/t for AMSA's Saldanha coastal steel plant and $80/t for its inland Vanderbijl and Newcastle steel plants.

That would apply from August 1, from which date AMSA would have to prepay at least 48 hours in advance.

By that date, AMSA would also have to have paid up the accumulated amounts due for the iron-ore delivered between March 1 and July 15 at a higher interim price.

AMSA said that, while the $50/t would have been sufficient to keep the Saldanha plant at a financial break-even point, the $80/t would result in the possible closure of its inland steel works.

The $50/t amounted to a 69% increase over the cost-plus-3% iron-ore price and the $80/t price an increase of 171%.

Nyembezi-Heita added that steel prices had declined by $100/t since AMSA's interim pricing negotiations had begun with KIO in March.

South Africa's Department of Trade and Industry said in a media release that it was "gravely concerned" about the KIO announcement and that the dispute between KIO and AMSA should not result in iron-ore previously processed locally being exported in unbeneficiated form.

The department also did not want to see any disruption of local steel production nor did it want the dispute to result in the domestic steel price rising above internationally uncompetitive levels.

During the negotiation period, SIOC has continued to deliver iron-ore to AMSA, but the steelmaker has not paid the invoiced price reflecting the higher interim price, but has instead continued only to remit the cost-plus-3% price.

SIOC delivered 337 402 t of iron-ore to AMSA's Saldanha plant and 1 115 180 t of iron-ore to AMSA's inland plants from March 1 to June 30.

"There is considerable commercial risk to SIOC and its shareholders if it continues to supply iron-ore to AMSA without an agreement on the terms of supply," KIO said in a Stock Exchange News Service announcement.

KIO notified AMSA in February that it was no longer entitled to receive 6,25-million tons a year of Sishen iron-ore at the cost-plus-3% arrangement because of AMSA failing to convert its old-order mining rights to new-order mining rights.

KIO attempted to acquire AMSA's former rights, but these were awarded instead to Imperial Crown Trading, which KIO is contesting in the North Gauteng High Court.

The cost-plus-3% agreement has been in place since 2001 based on AMSA's now-forfeited ownership of an undivided 21,4% interest mineral rights at the Sishen mine, which KIO contends became inoperative from May 1, 2009 – a matter which has been referred to arbitration.

However, AMSA has yet to file its answering papers to SIOC's statement of claim.

An AMSA spokesperson told Engineering News Online that the filing of its answering papers was now imminent and that the company's arbitrator had been appointed.

Pending the outcome of the arbitration, SIOC has invoiced AMSA at the higher interim price price and AMSA has charged South African steel consumers R600/t more for steel.

Meanwhile, South Africa's Competition Commission is giving "priority attention" to dealing with AMSA's unilateral imposition of the R600-plus surcharge on every ton of steel sold domestically.

A preliminary investigation is under way into the possibility that the surcharge may constitute an abuse of dominance.

Edited by: Creamer Media Reporter
Source engineeringnews.co.za

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Expansion plans for Saldanha Bay port on the West Coast

A remarkable transport/engineering feat happened during last year’s Christmas season – on 27 December – at the Sishen railway station. It literally set the wheels in motion for far-reaching results, especially so for Saldanha’s iron ore export effort.

On that day the last of ten trains left the Northern Cape’s iron export station for Saldanha, almost 1 000 km to the south. Its successful departure would determine whether the iron ore team could claim victory by reaching the one million ton per week throughput mark. And so it did, to much jubilation amongst the teams involved.

There was purpose to this exercise – to push iron ore exports, through the Port of Saldanha, at a rate of 60 million tons a year on a continuous basis by the end of this year. SA Port Operations is under continual pressure from the Northern Cape mining operations, especially Kumba and Assmang, to increase export capacity.

During a visit to the bulk terminal in Saldanha, chief executive Karl Socikwa last month told CBN the third phase (1C) of the terminal expansion plan is now in full swing, with the aim to lift export capacity to 60 million tons per annum. This comes in at a cost of R630 million, all earmarked to improve the infrastructure at the port.

During the past financial year, ending March 2010, the port loaded a record of 44 million tons of iron ore, almost 70% of it for Far East markets, more notably China.

During 2004 Terminal Expansion Phase 1A was completed, at a cost of R950 million, lifting capacity from 28 mtpa to 36 million tons per annum. Last year Terminal Expansion Phase 1B was completed, expanding capacity to 47 mtpa.

The current ramp-up of the corridor to 60 mtpa is reliant on the channel achieving certain milestones within certain pre-defined time frames.

One of these critical milestones was for the channel to move from an average of 920 000 tons per week to around a million tons per week in the first quarter of 2010. Breaking through this psychological barrier early was necessary to set the tone for this year. Now it’s all about sustainability at these levels.

The bulk terminal at the Port of Saldanha, which is the last link in the iron ore corridor supply chain is where all the action happens in terms of offloading, stacking and stockpiling, reclaiming and loading the ore onto bulk carrier ships.

It is estimated that well in excess of R5 billion has so far been spent to increase iron ore exports from the deep-water port to meet the growing demand for South Africa’s high-quality iron ore. Although volumes have been down of recent months, all seems set to sustain the one million ton target to create capacity ahead of demand.

Currently the infrastructure at the port comprises two rotary tipplers, four stacker reclaimers, two shiploaders and 25 conveying systems, providing the terminal with a capacity to off-load 10 000 tons per hour onto a ship.

But much money will still be spent on to expand infrastructure as the port is gearing up to increase capacity to more than 80 million tons per annum in the not too distant future.

Environmental impact studies are needed for the establishment of new infrastructure on some 141 hectares of land. This part of the proposed project could have the biggest impact on the sensitive environment of the bay and lagoon.

The plan is to reclaim an additional 50 hectares of land within Saldanha Bay. This will be done by dredger. The shipping channel will be deepened and the material recovered will be used for the construction of new shipping berths.

Another footprint area which could be impacted, is 35 hectares of land in the undisturbed dune area on the coast between the iron ore quay and the Saldanha Mittal Steel Plant. The intention is also to fill in the so called ‘Oyster Dam’ to create more space for stockpiling iron ore within the confines of Saldanha Bay.

The size of trains and the number of ships calling at Saldanha’s port will also increase when the facilities are enlarged to handle more iron ore. Ships calling at the port of Saldanha will also increase in size and number. Two ships a week, being about a hundred a year, called at Saldanha in 2007 to load iron ore. Even though bigger ships will be loading, it’s anticipated that shipping volume will now increase to more than 200 vessels a year.

Source cbn.co.za

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Good news for Saldanha Steel and the West Coast

LONDON – World steel demand is growing faster and earlier than expected, driven primarily by China's runaway growth, and is now expected to hit pre-crisis levels this year, the World Steel Association said on Tuesday.

The body expects apparent steel use to rise by 10,7% to R1,241-billion tons this year, while demand is expected to hit a historical high at 1,306-billion tons in 2011.

"The world steel industry now seems firmly set on a path to recovery," Daniel Novegil, chairman of the association's economics committee said in a statement. The forecasts show improved figures compared with estimates published in late 2009.

"The recovery is not only earlier but also stronger than expected. It was driven in large part by government stimulus packages and recent inventory re-stocking," he added.

China's apparent steel use in 2010 is expected to increase by 6,7% to 579-million tons. In 2009, it was estimated to have risen to 542,4-million tons.

The forecasts are from Worldsteel's short range outlook, which its board approved in Vienna over the weekend.

While the growth picture for this year and next was looking robust, Novegil noted a much slower pace of recovery in key developed economies.

"The emerging economies, who in total maintained positive growth through the crisis will continue to show strong growth, driving world steel demand in the future," he said.

"However the current recovery in major developed economies is slower and the projected steel demand for them in 2011 is well below 2007 levels," he added.

The association has also published March global crude steel production figures, which showed a hefty jump of 30,6% year-on-year, bringing the production to 120-million tons.

In the first quarter of this year, crude steel output rose to 342,3-million tons, rising 29% compared with the same period last year.

Source http://www.engineeringnews.co.za

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ArcelorMittal's Saldanha Bay ,R600/t Sishen surcharge evokes angry SA govt response

The decision of JSE-listed steelmaker ArcelorMittal South Africa (AMSA) to impose a R600/t Sishen surcharge on the steel that it sells has evoked an angry response from the South African government, which described the surcharge as "unjustifiable".

As a consequence, South Africa's Department of Trade and Industry (DTI) said that it would be referring the matter to the Competition Commission to investigate AMSA for "abuse of dominance and excessive pricing".

Simultaneously with AMSA CEO Nonkululeko Nyembezi-Heita announcing at a media conference that May 1 would be the date of AMSA's effective 10% steel price surcharge, the DTI charged that the steelmaker was signalling "that the South African economy is expected to bear the cost of its commercial error, which in turn will hamper our industrialisation efforts".

The DTI said that AMSA had committed a "grave commercial error in failing to convert its old-order mining rights to new-order mining rights by the cutoff date prescribed in the Mineral and Petroleum Resources Development Act".

The date prescribed in the Act was April 30, 2009, and on May 4, 2009, two companies applied for AMSA's 21,4% undivided share in the Sishen mine, with a prospecting right covering that entitlement having been subsequently granted to little-known black empowerment company Imperial Crown Trading 289 - a matter which is itself the subject of appeal by Kumba Iron Ore's (KIO's) 74%-held Sishen Iron Ore Company (SIOC), which mines the resource and which applied for a mining right over AMSA's lapsed right.

But Nyembezi-Heita contended AMSA's profit margin was currently 18% compared with that of KIO's profit margin of 55% and that commercial rates for iron-ore would reduce its margin to 14%.

AMSA's action followed the signal by SIOC that it was no longer obliged to supply 6,25-million tons of iron-ore at a special price of cost plus 3%, owing to AMSA's right to a portion of the Sishen mine lapsing through its failure to convert the mineral rights to new-order rights.

Nyembezi-Heita said that "by any stretch of the imagination", SIOC's step was an "extraordinary event" and, in order to take account of the "massive differential" between the commercial price and the cost plus 3% price, AMSA would introduce a "Sishen surcharge" of R600/t of steel that it sold in South Africa from May 1, which was roughly $80/t at Tuesday's exchange rate.

Nyembezi-Heita added that it was not AMSA's intention to benefit "in any way, form or fashion" from the additional surcharge and that it had told its South African customers that, in the event of arbitration victory against KIO, the accumulated surcharge plus interest would be refunded to customers in full.

But should AMSA lose the arbitration, the money raised through the surcharge would become available "partly" to fund the amount that would be payable to KIO at that stage.

She said that the R600/t surcharge did not go all the way to mitigating the cost differential between the KIO commercial charge and the cost plus 3%.

"If we had to calculate very crudely what the full impact would have been on just the domestic sales that we foresee for the remainder of 2010, a surcharge of closer to $150/t would have to have been charged," Nyembezi-Heita said.

KIO was, she said, still charging at the cost plus 3% and had not yet imposed commercial pricing, although KIO's SIOC had given notice of its entitlement to do so and a dispute resolution procedure under the agreement had been initiated.

The Sishen surcharge would be based on the additional iron-ore cost, based upon the international spot price for iron-ore that SIOC asserted it was entitled to charge, which AMSA disputed.

Although AMSA would continue to export steel in the short term, this would not be profitable when taking into account iron-ore input costs as claimed by SIOC, as well as current steel prices.

Management would continue to review the profitability of operations and, if necessary, adjust the commercial policy and production levels, which might necessitate plant closures. Meanwhile, all 11 000 jobs would be preserved and steps would be taken to introduce a broad-based black economic-empowerment programme.

While fuller comment on possible plant closure would be given in three months time, it was already certain that the Saldanha Steel plant would face the biggest threat of closure from export weakness.

AMSA said that it was considering its rights on the written contention of the Department of Mineral Resources on March 17 that it had forfeited its 21,4% undivided share of the old-order right from May 1, 2009.

Further, AMSA was engaging SIOC over what it alleged was overcharging in the past few years.

However, an unsympathetic DTI said that AMSA had consistently argued that there should be no link made between its costs of production and its pricing of steel in the South African market, in the context of a long period of concessional access to iron-ore on a cost plus basis.

"AMSA claims to price its steel according to a ‘basket' of international steel prices comprising four countries: the US, Germany, China and Russia. Producers in all of these countries are subject to commercial costs of iron-ore," the DTI noted, adding that the iron-ore surcharge amounted to double counting.

"Further, since at least January 2009, AMSA has been pricing steel above its own international ‘basket' price," the department said.

Government said that it had taken note of the Competition Tribunal's 2007 findings in the country's first-ever excessive pricing case - which was lodged against the steel producer by gold-miners Harmony and DRDGold - that, absent alternative remedies, "divestiture may constitute the only appropriate remedy".

Source http://www.engineeringnews.co.za

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Duferco & Mittal slow down production.

It is rumored that Mittal steel West Coast has only orders for 10% of its capacity for November 2008, an official announcement is expected on 7th November 2008, Duferco Steel Processing who rely on Mittal steel in Saldanha has stopped production because of an empty order book

Weak metal prices will hit South African mining

JOHANNESBURG (Reuters) - South Africa's Minerals and Energy Minister, Buyelwa Sonjica said on Tuesday the global financial crisis that had led to a decline in metal prices would negatively impact the country's mining sector.

"It (Financial crisis) is affecting all economies and South Africa is no exception," she said.

"I see it impacting on the producers. Of course also on the exports. I would think that it will impact on the negative. I'm very concerned because then it would have other negative consequences on employment."

Mining companies in South Africa have in recent weeks said they are taking a fresh look at their prospects and projects due to the credit squeeze that has led to fears of a global economic slowdown and resulted in weak metal prices.

Lonmin Plc, the world's No. 3 platinum producer, has advised trade unions of possible lay offs due to the big drop in demand for the metal from car makers, unions said on Monday.

Platinum has lost more than half its value in the last quarter on slow auto sales data and the outlook for demand from carmakers, who consume more than half of the annual platinum output to make catalysts to clean exhaust fumes.

Some other big players have said they too would review their projects owing to the credit crisis.

South Africa AngloGold Ashanti, the world's No. 3 gold producer, has said it plans to review capital expenditures of $400 million for next year by stopping some projects.

Sonjica, who spoke to reporters after the South African Chamber of Mines annual general meeting, said the country's drive to embrace blacks into the mainstream economy after years of exclusion under apartheid had also been adversely affected by the credit crunch, falling metal and stock prices.

Under the government-driven Black Economic Empowerment (BEE), miners are required to sell 15 percent of their assets to black investors by 2009 and 26 percent by 2014.

BLACK-OWNED

Black-owned companies seeking to buy the assets have relied on fast-fizzling credit, and some have become takeover targets.

"BEE performance has unfortunately been impacted severely by the financial meltdown," Sonjica said.

Sonjica added that the mining industry would meet early next year to review the progress of BEE in the sector.

South Africa's Impala Platinum Ltd (Implats) has make a friendly takeover bid of mostly shartes and cash to buy black-owned Mvelaphanda Resources (Mvela) and Mvela's unit Northam Platinum, in a bid to boost its output.

The deal highlights a trend where black-owned firms that do not have finances to develop projects are being seen as takeover targets by established producers.

Sipho Nkosi said, the Chamber of Mines President, said South African mining companies lost some 12 billion rand this year because of power shortages.

He said the mining sector wanted the government to introduce protocols to handle the nation's electricity crisis, among other issues to ensure that power customers are ranked in terms of their contribution to the economy.

The mining sector has long complained that it has had to bear the brunt of the power cuts, compared to other sectors of the economy. Mining firms are receiving some 90 percent of their normal power requirements.

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