Supply fears hurt Amsa sales

[] — ARCELORMITTAL SA (Amsa) CEO Nonkululeko Nyembezi-Heita said on Tuesday that jitters over the stability of iron ore supply could have prompted the group’s South African customer base to source steel from abroad.

The group released third quarter results to end-September on Tuesday, posting a 17% drop in sales. Exacerbated by a sharp increase in input costs, Amsa’s earnings dropped to R68m for the period from more than R1bn for the June-quarter. However, earnings still compared favourably with September 2009’s loss of R65m.

An 11% increase in the cash cost of steel sales, mainly due to higher coal and iron ore prices, as well as realised prices that were on average 8% lower than the previous quarter, were contributing factors to the earnings decline.

“The local market experienced a significant increase in imports, indicating concerns over stable iron ore supply in the wake of the rail accident, the transport strike and the Kumba dispute,’ said Nyembezi-Heita.

She was referring to the closure of the Sishen-Saldanha railway line for about a week after an iron ore train derailed outside Vredendal, a labour dispute in May between Transnet and the South African Transport and Allied Workers Union which resulted in a two-week strike, as well as the group’s well-publicised dispute with Kumba Iron Ore over the supply of ore from the Sishen mine.

Kumba ended an agreement with Amsa earlier this year under which the steel maker bought raw material at 3% above production costs. An interim accord to which the parties agreed to while the dispute is in arbitration, lapses July 2011.

According to Nyembezi-Heita the arbitration hearing hasn’t started yet, and will probably not commence before year-end.

“We’re keeping an eye on the July deadline and will keep the market informed,’ she said.

Turning to the group’s pending take-over of Imperial Crown Trading (ICT), which acquired Amsa’s previously held 21.4% mining right in Sishen, Nyembezi-Heita said the due diligence process preceding the possible transaction was still ongoing.

“We’re keeping tabs on the revelations and activities of that (ICT) company and watching it closely,’ she said, referring to Kumba’s assertion in court documents that the “ICT application is fraudulent and the product of a corrupt process’.

She said the group would also engage key stakeholders, most notably the Public Investment Corporation, which have voiced their opposition to the deal.

However, Nyembezi-Heita said this didn’t mean Amsa’s appetite for the deal has diminished, saying the strategic objective has always been to “cover all its bases’ in reacquiring the mining right it had lost.

She added Amsa won’t be the beneficiary of any other prospecting or mining right ICT might acquire, saying the deal only involved the Sishen right.