Cape Town - A dispute between iron ore producer Kumba Iron Ore and ArcelorMittal South Africa could affect South Africa's economy and raise local steel prices, a government minister said on Thursday.
"Fundamentally we regard this as a commercial dispute between two companies. We are however, monitoring the implications of the dispute for the broader economy," trade minister Rob Davies told journalists.
"We are of course concerned if this has any implications on the steel price in this country, and on the availability of our resource for local beneficiation into steel products."
Kumba, a unit of global miner Anglo American Plc, terminated a deal under which it supplied ArcelorMittal South Africa's unit with iron ore at a discount, and said it would sell its commodity to the steelmaker at market rates from March 1.
ArcelorMittal South Africa said last week the long-term supply agreement signed by the two companies in 2001 was valid and binding, and the steelmaker would take all steps to protect its shareholders over the matter, including arbitration.
The company has said it would also consider taking legal action against Kumba to have the deal reinstated.
Analysts say ArcelorMittal South Africa faces increased costs if it has to pay market rates for its iron ore supplies, which may also hurt profits at the company, already struggling because of the global recession.
The analysts said the steelmaker may transfer some of the additional costs to its customers in South Africa, many of who are in the mining sector.
- Reuters