Govt now wants to strengthen Arcelor Mittal monopoly: make up your mind!

This Arcelor Mittal vs Kumba iron ore price dispute has caught our attention and again made it obvious how clumsy and short-sighted government is. 

If you’ve not followed developments, the gist of the dispute is that Arcelor has lost the long-term contract to buy iron ore from Kumba at a price of cost plus 3%.  This means Arcelor must now pay a market related price.  The result of this would be that Arcelor will be forced to close its Saldanha plant, curtail exports, as well as lay off some 4,000 workers.

The government has jumped into the dispute, wanting to arbitrate and mediate negotiations wherever it can.  Like a fly would swoop down on that empty wet patch on a springbok’s droppings, so has the govt attacked this opportunity to interfere with business.  But their scope is somewhat limited where two private companies with a majority of foreign shareholders are concerned.

The rhetoric around this issue has again been as emotive as ever: Sidwell Medupe, a spokesman for the DTI said in a statement: “All parties committed themselves to reaching an agreement which will put the country first.” (HA emphasis.)  A Miningmx article read “Certainly, there’s no way government can sit by while a dispute between foreign shareholders sees local employees take the consequences.”

I suppose we need not argue with the last statement, for government can actively intervene and make life difficult for these ‘foreign capitalist pig shareholders of Arcelor and Kumba.’ But isn’t it funny how just recently the government were having issues with Arcelor Mittal and attempting to break their monopoly on the local steel industry?  Government has climbed in one side of the car’s passenger seat as Lex Luther, and climbed out the other as Superman. Now it wants to increase the monopoly power of Arcelor by saving the Saldanha plant.  As Alanis used to sing back in the mid-90’s: “Isn’t it ironic?”

The economic point is that Arcelor’s loss is Kumba’s gain.  Arcelor may be forced to fire 4,000 staff members and shut the Saldanha plant, but Kumba will be able to reinvest any profits from its higher sales price into capacity expansion and other employment generating activities.  It will be boom times for Kumba, yet depression times for Arcelor Saldanha.