[miningmx.com] — A DISPUTE about iron pricing between Kumba Iron Ore, a listed subsidiary of Anglo American, and ArcelorMittal SA took another turn this week after the steelmaker turned down a two-pronged ultimatum and may now have no option but to buy iron ore from Kumba on a ‘pay-and-take basis’.
Kumba offered ArcelorMittal a choice for payment of iron ore after the two sides have spent the best part of this year disputing whether Kumba is subject to a long-standing sales agreement in which ArcelorMittal buys iron ore from Kumba for cost plus 3% – far below the market related price for internationally traded iron ore.
In terms of the options Kumba offered this week, ArcelorMittal could either: pay a historic price of cost plus 3% and divert the difference to the market related price into an escrow account until the dispute was settled; or pay a higher price for the iron ore, but still less than market related prices. In the second option, the higher price ArcelorMittal would pay would be backdated to March.
ArcelorMittal turned down both options and therefore may be forced to accept Kumba’s second option buying iron ore from Kumba at a price of $50 to $80 per tonne FOR (free on rail) for delivery to its Saldanha and inland plants respectively.
ArcelorMittal must confirm it is willing to pay the higher prices as and when it needs the iron ore – an option Kumba has described as pay-and-take, or perhaps more aptly, on a cash on delivery basis.
Legally, Kumba Iron Ore is tackling the matter through its subsidiary, Sishen Iron Ore Company (SIOC) which said in a statement today that it had been prepared to offer “a significant discount to Mittal for the interim period”. It added, however, that these pricings were interim measures and shouldn’t form the basis of a long-standing agreement.
It offered iron ore for supply to Mittal’s Saldanha plant until the beginning of September “at an even lower price” than already discounted, it said.
ArcelorMittal is due to make an announcement later today, a spokesman for the company said.
Kumba has supported its hard line stance with Arcelor by claiming that the steelmaker, which is ultimately controlled by the fabulously wealthy Mittal family, has rejected “all reasonable” efforts to arrive at an interim pricing agreement.
Between March and June 30, SIOC has delivered 337,402 tonnes to ArcelorMittal’s Saldanha plant and another 1,12 million tonnes to its inland plants “even though Mittal has refused to pay the invoiced price”, remitting cost plus 3% to SIOC, it said.
“As a result, there is considerable commercial risk to SIOC and its shareholders if it continues to supply iron ore to Mittal without agreement on terms of supply,” Kumba said in its statement.