[miningmx.com] –The department of trade and industry’s desire for low steel prices for local manufacturers will have no significant effect on output, a Kumba Iron Ore consultant said on Monday.
“… selling iron ore at cost plus 3% will not cause lower steel prices or make it possible for South African companies to suddenly expand,’ Robert Stillman, vice president of Charles River Associates, told media.
The department of trade and industry (dti) had said high steel prices had retarded the growth of downstream manufacturing that uses steel, Stillman said.
Therefore, Kumba Iron Ore’s Sishen mine in the Northern Cape should supply iron ore to domestic steel producers at below market prices to help growth and support the development of the local industry.
Anglo-American subsidiary Kumba owns 78.6% of Sishen – one of the world’s largest and richest iron ore mines.
Stillman rejected the dti’s argument.
“It is not going to have a major effect on growth to have lower steel prices,’ he said.
This was because steel accounted for a small share of costs of most downstream manufacturers.
The demand for steel was “inelastic’, he said.
“This means that a 10% reduction in price would increase the downstream use of steel (and hence downstream output) by only about 2% to 3%.’
Stillman said about 85% of the steel used in South Africa was used in industries where steel accounts for less than 5% of the cost.
The ministers of trade and industry, economic development and mineral resources had established an inter-departmental task team to investigate the appropriate policies to achieve certain developmental goals related to the South African iron and steel sectors.
The discussions had been accelerated after Kumba’s decision to cancel an agreement to supply iron ore at cost plus 3% to ArcelorMittal SA.
This was after ArcelorMittal failed to renew its mineral rights for the other 21.4% stake in Sishen.
ArcelorMittal SA objected to Kumba’s decision and this was now the subject of arbitration.
