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ArcelorMittal, Kumba seal iron ore deal, shares up

ArcelorMittal South Africa , a unit of the world's biggest steelmaker, reached a stop-gap agreement to buy ore from Kumba Iron Ore over the next year at about half of recent market prices.

Agencies|
Jul 22, 2010, 05.00 PM IST
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JOHANNESBURG: ArcelorMittal South Africa , a unit of the world's biggest steelmaker, reached a stop-gap agreement to buy ore from Kumba Iron Ore over the next year at about half of recent market prices.

Shares of both companies rose sharply on Thursday after they announced the deal, however, with the end to a battle that has dragged on since late February between the steelmaker and its supplier, and which prompted South Africa's government to step in and mediate.

Kumba, an arm of miner Anglo American and the world's tenth-largest producer of iron ore, separately reported a 10 per cent rise in first-half export sales volume and forecast increasing demand for ore due to rising crude steel output. Under the terms of the deal, ArcerlorMittal will pay a fixed price of $50 per tonne for ore for its Saldanha plant and $70 per tonne for its inland plants for one year until July 2011.

"The outcome of the agreement wasn't exactly in (Kumba's) favour. It could have worked better for them if there was ... a phased-in approach," said Sasha Naryshkine, a trader at asset manager Vestact. "At least some sort of settlement has been reached, everyone is seen in more favourable light." The spot price for iron ore was $115 per tonne on Thursday, and Kumba has said the average price it received for iron ore exports in the second quarter was $136 per tonne.

Kumba, which previously sold to ArcelorMittal at a discount, had planned to sell at market rates starting in March, citing the impact of the strengthening rand on profit. Kumba shares were up 4.8 per cent and Arcelormittal shares up 4.4 per cent at 1115 GMT, outpacing a 1.3 per cent increase in the All-Share index.

SHUTTING SALDANHA

ArcelorMittal said last week that higher ore prices would have a negative impact on profits. It threatened to close its Saldanha plant, near South Africa's southwest coast, which would have cut up to 4,000 jobs. South Africa's minister of trade and industry called meetings to mediate between the two companies. Kumba said export sales volume rose to 18.8 million tonnes for the six months to end-June, while its operating profit jumped 64 per cent to 11.2 billion rand ($1.5 billion).

Its exports to China during the period rose by 4.1 per cent on a year-on-year basis. China is the world's largest iron ore buyer and consumes more than half of the world's traded ore. Kumba said it expected global crude steel output to rise by 4.6 per cent to 1.37 billion tonnes in 2010 and that it remained committed to increasing production.

Its capital expenditure on property, plant and equipment hit 1.5 billion rand during the first half as it expanded operations, mainly developing its Kolomela Mine.

Shares of Kumba have risen about 14 per cent so far this year, while ArcelorMittal South Africa has lost about a quarter of its value. Johannesburg's All-Share index has fallen about 1.5 per cent.

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