[miningmx.com] –THE battle between ArcelorMittal and Kumba Iron Ore (Kumba) over the iron ore supply contract between the two has ratcheted up another notch.
Kumba put out a Stock Exchange News Service (Sens) release on Tuesday which could be viewed as an intention to alter radically the supply of iron ore to the steel producer.
The statement does not go into specifics but obvious options include stopping the supply altogether, or supplying on a cash on delivery (COD) basis only.
The nub of the latest development is that the two sides have still not reached an agreement on the interim pricing of iron ore supplies while the dispute over the terms of the iron ore supply contract is resolved through arbitration.
A Kumba spokesperson pointed out that no payments had been received from ArcelorMittal for iron ore deliveries made on the March invoice.
The dispute ignited when ArcelorMittal’s 21.4% stake in the Sishen Iron Ore Company (SIOC) mineral rights lapsed at the end of April 2009 and reverted to the State because ArcelorMittal had not applied for their conversion to new order mining rights.
Kumba immediately applied for those mining rights and also ended its contract to supply 6.25 million tonnes of iron ore annually to ArcelorMittal priced at cost plus 3%.
ArcelorMittal’s response was that the supply contract remained valid and binding. The steel maker pays about R204/tonne under the agreement, but under commercial terms this cost could rise to $100/t (about R740/t).
Kumba announced in a Sens statement released on April 19 that it was taking the dispute to arbitration. ArcelorMittal put out its latest version of the situation in a Sens statement released on April 29.
That triggered the latest release from Kumba on the grounds that ArcelorMittal’s April 29 version of the payment arrangements was incorrect.
Kumba said on April 19 it required “ArcelorMittal to accept its interim proposal that ArcelorMittal pay the contractual price (cost plus 3%) to SIOC [Sishen Iron Ore Company] and the difference between that price and the interim price proposed by SIOC into escrow, or provide a suitable guarantee for its payment in the event of SIOC being successful in the arbitration.’
In Tuesday’s Sens statement Kumba said: “ArcelorMittal has thus far declined to accept that proposal or make a firm counter-proposal regarding an interim price or payment mechanism.
“SIOC has never advised ArcelorMittal that will be content to recover the difference between the two prices from ArcelorMittal in the event of it succeeding in the arbitration.
“On the contrary, SIOC has advised ArcelorMittal that should the parties not come to a firm agreement on an interim pricing mechanism in the near future, SIOC will review the basis upon which it will continue to supply iron ore to ArcelorMittal.’
The Kumba spokesperson said: “We cannot discount the possibility that if we cannot reach agreement a last resort would be to terminate supply.
“We do not believe it is in anyone’s interest to stop supply and we are attempting to do all in our power to avoid such an outcome.
“We have made extensive efforts to come to an agreement with Mittall and have been unable to do so. We do have other options to sell the ore; we have an agreement with Transnet to delier an extra 4mt/year in 2010 and 2011 charging a ‘super tariff’.’
Asked what precise time frame was implied by the term “in the near future’, the spokesperson replied, “we cannot be specific on timing as we are trying to hold bona fide negotiations which clearly depend on ArcelorMittal engaging with SIOC and trying to come to some form of agreement.
“However, we have been trying to engage since March 2 this year and at some stage will have to reassess the situation.”
An ArcelorMittal spokesperson commented, ” we stand by our Sens annnouncement of April 29.”