UPDATE: ArcelorMittal South Africa Scraps Steel Surcharge

28th Jul 2010 09:45

(Adds detail, background.) By Robb M. Stewart Of DOW JONES NEWSWIRES JOHANNESBURG (Dow Jones)--South Africa's largest steel producer, a unit of ArcelorMittal (MT), said Wednesday it has scrapped a surcharge on its products after agreeing a stopgap deal with its primary iron ore supplier in a dispute it continues to contest. ArcelorMittal South Africa Ltd. (ACL.JO) added the charge after Kumba Iron Ore Ltd. (KIO.JO) withdrew from a favorable pricing arrangement and began charging market prices for ore from its main Sishen mine. "We have reverted to a single all-in price" for domestic customers, said Nonkululeko Nyembezi-Heita, chief executive officer of the steel company. The companies last week agreed an interim price for ore from Sishen of $50 a metric ton for shipments to ArcelorMittal SA's coastal Saldanha plant and $70/ton for inland plants, and continue with arbitration to reach a final settlement. Nyembezi-Heita during a conference call with reporters said the interim pricing deal with Kumba has no bearing on the arbitration process, or ArcelorMittal SA's conviction a supply deal with Kumba dating back to 2001 remains legally binding. Kumba withdrew from the deal to sell ore from Sishen at 3% above the cost of production in March after ArcelorMittal SA lost its mining right on a 21.4% stake in Sishen. ArcelorMittal SA, which swung back to a profit in the first half of the year, said it expects its earnings in the third quarter of the year to decline on the quarter due to lower international steel prices and demand, plus material costs that still remain at high levels. Helped by a recovery in steel demand, the company said it returned to a profit of 1.78 billion rand ($242.5 million) for the first six months of the year from a year-earlier loss of ZAR848 million. Revenue for the period rose 35% to ZAR16.17 billion from ZAR11.96 billion. Nyembezi-Heita said the company achieved higher prices across all steel products together with higher volumes in the first half of the year. Half-year steel sales reached 2.7 million metric tons, 31% higher than a year ago and up 12% on the preceding six months, the company said. Exports of steel were 17% higher on the year and 10% on the previous six months. At 0748 GMT, ArcelorMittal SA's shares were 2.3% higher at ZAR86.45 to outpace the wider market. The stock remains down about 16% on the start of the year. -By Robb M. Stewart, Dow Jones Newswires; +27 11 783 7848; [email protected] (END) Dow Jones Newswires July 28, 2010 04:45 ET (08:45 GMT)