13 December 2012

South Africa: Department of Trade and Industry Statement On the Outcome of the Mediation Process Between Sishen Iron Ore Company (SIOC) and Arcelormittal South Africa (AMSA)

press release

The Sishen Iron Ore Company (SIOC) and ArcelorMittal (AMSA) have reached an agreement on the terms and conditions on which SIOC will continue to supply iron ore to AMSA after 31 December 2012 - the date on which the existing commercial agreement between the two companies expires.

This flows out of a mediation process undertaken by a mediator appointed by the Minister of Trade and Industry, Dr Rob Davies. The appointment of a mediator follows a request to the Minister, by the parties to the dispute, to facilitate a mediation process. Minister Davies agreed to appoint a mediator, Dr Zavareh Rustomjee, provided that any commercial agreement reached would of necessity be, without prejudice to governments longer term policy objectives, set out in the recent Cabinet decisions on this and related matters. Government was also conscious of a potential threat to steel production and security of supply arising from the dispute. Government is also mindful of the parallel and interlocking disputes on matters relevant to this issue, currently before the courts.

It is government's understanding that the new interim pricing agreement is for one year, and will govern the terms and conditions on which SIOC will sell iron ore to AMSA from the Sishen Mine, with effect from 1 January 2013. The agreement ensures that SIOC will supply a maximum annual volume of 4.8 million tonnes of iron ore to AMSA at a weighted average of US$65 per tonne and that the lump: fine ratio which has been agreed to is 60:40. The iron ore specifications as well as other terms and conditions on which iron ore is sold will be on the same material terms as those contained in the current interim pricing agreement which expires on 31 December 2012.

Minister Davies stated; 'Whilst the commercial agreement that has been reached secures short term security of supply and production it is noted with considerable concern that the parties have failed to agree on the developmental intent and outcomes that government has been seeking in the iron ore and steel value chain. The agreement does not ensure that a discounted iron ore price will be passed on as a developmental steel price to the manufacturing sector.

'This failure strongly underlines Cabinets conviction on the need for a set of policy interventions to secure a competitive advantage for the domestic manufacturing sector and its decision to expedite the deployment of those policy instruments proposed by the Inter-Departmental Task Team on Iron Ore and Steel'.

As previously indicated to the media, these interventions include;

A fast-track legislative process led by the Department of Mineral Resources to amend the Mineral Resources and Petroleum Development Act to secure a competitive advantage for the manufacturing sector which arises from South Africa's enormous resource endowment

A process led by the Economic Development Department (EDD) to utilise the International Trade Administration Act to safeguard the supply of affordable scrap metal to domestic mills and curtail the abuse of export of scrap metal, including with respect to associated cable and metal theft

A process to amend the Competition Act led by EDD to ensure that iron ore price concessions are indeed passed on to downstream users, and

An Industrial Development Corporation led process to fast-track new steel investments to strengthen competition in the steel sector.

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