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Johannesburg - ArcelorMittal South Africa bowed to union demands on Wednesday agreeing to a 9.67% wage increase, but an analyst said the effect on the steelmaker's earnings would be negligible owing to its market dominance.
"As the world's biggest steel producer, ArcelorMittal has very little competition in South Africa," said Justin Louw of asset management firm BJM Private Clients.
"They retain a very captive audience. It still has a healthy inflow of cash from its local businesses."
Sven Lunsche, company spokesperson for ArcelorMittal, said: "The wage increase affects all unionised employees, but not packaged salary staff." That was equal to about 6 660 workers.
However, Lunsche declined to put a figure on the higher annual salary bill due to ArcelorMittal. The pay hike would be backdated to April 1.
In 2008, ArcelorMittal had agreed terms in a multi-year collective deal with unionised employees. However, the company and unions have not been able to find common ground on a specific wage increase this year until now.
At first, ArcelorMittal refused to offer an increase; it then upped the offer to 5%, eventually agreeing on 9.6%.
During the talks, ArcelorMittal tried to "adjust the wage increase downwards", because economic conditions were not conducive to a 9.6% increase.
One of the unions pushing for the increase was Uasa, which represents workers in the diamond, motor, manufacturing, transport, mining and engineering sectors in South Africa.
Said Uasa divisional manager Tim Kruger: "We are not ignorant towards the economic and financial challenges facing the company, hence we proposed that a working group be established to jointly explore ways and means of cutting costs and alternatives to avoid restructuring."
The company reported a first-quarter headline loss in April, but said second-quarter earnings are set to improve due to lower raw material costs and a gradual pick-up in demand during the second half of the year.
The pay hike comes after a spat of incidents in Luxembourg outside the firm's headquarters on Tuesday, when about 1 000 employees protested against temporary lay-offs.
On Wednesday afternoon, ArcelorMittal was trading down 3.01% to 8 850c/share.
- Fin24.com