Cowboy Indians in South Africa

Cowboy Indians in South Africa

by Nostromo Research, London

26th February 2006

India's Tata Steel has announced plans to build a 120,000 tonnes per year ferrochrome smelter in South Africa's Richards Bay, Kwa Natal, one of the country's premier locations for eco-tourism.

The company expects to begin production by the end of next year; Priyadarshan Roy, head of Tata's ferro alloys and minerals unit says the company is "in an expansive mode.. we are bullish" [Mining Journal, London 24/2/2006].

This announcement follows Tata's abandonment of steel plant construction in eastern Orissa, India, on a site which has now become synonymous with massacre, called Kalinganagar.
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For, on January 2 this year, police brought in by Tata for "protection" opened fire on local tribal people protesting against the plant and lack of compensation for loss of their land. Thirteen died - including a child, several women, and one policeman. Bodies were returned to familes from the hospital with their hands deliberately cut off. According to a BBC World Service report today, Tata's Kalinganagar site has now been abandoned, to villagers' cows and buffaloes [http://news.bbc.co.uk/1/hi/world/south_asia/4686638.stm]

The South African smelter would almost double Tata's ferrochrome output (to 300,000 t/y) and benefit from electricity prices which are lower than back home [Hindustan Times Feb 22 2006]

South Africa is the world's biggest ferrochrome producer - a product which is currently in over-supply but, since Tata also has its eyes on car manufacture in the Republic, the project makes an attractive fit as long as it can keep production costs low.

Currently there's no love lost between India's most powerful domestic dynasty and the country's richest non-resident son, Lakshmi Mittal (he lives in a multi-million dollar house in London), owner of the eponymous company which is the world's biggest steel producer.

Mittal wants to get his claws on Highveld Steel when Anglo American divests it as part of the London-based company's "restructuring" announced in October, which moved into its final stages last week (Financial Times, February 23 2006). Highveld is not only South Africa's second biggest steel maker but also the world's leading producer of vanadium, used in steel alloys.

Not surprisingly, Tata is after Highveld as well. The company is reportedly in the ANC government's good books since buying into the country's second biggest telephone operator. It therefore looks likely to get environmental clearance for the ferrochrome plant, despite local opposition.

Meanwhile, Mittal Steel is on the block - accused by Harmony, one of South Africa's biggest mining companies - of rigging prices within the country, to reflect what it would have to pay on imported steel, rather than on actual production. An adverse verdict on Mittal's pricing practices could scupper its chances of grabbing Highveld.

Also bidding to takeover Highveld is the UK-based Kermas Group which acquired Samancor, the chrome producer, from Anglo American and BHPBilliton last year [Mineweb 17/1/2006; 24/5/2006]. Kermas concluded a "black empowerment" agreement with the South African government and has sales agreements with firms in Russia, Germany and Turkey.

Harmony set for tribunal showdown with Mittal SA

by Nicky Smith, Johannesburg

22nd February 2006

Harmony Gold takes up its crusade against the pricing practices of Mittal Steel South Africa early next month as it seeks a ruling from the competition tribunal that would reduce steel prices for local users.

Mittal Steel SA uses an import-parity pricing model, which means that even though its output costs are in the lowest quartile for producers globally, it charges its local customers the costs associated with importing the steel.

These costs include notional charges for insurance, storage and freight, including a seaborne fee, and possibly rail or road transport tariffs as well. This means that even if a local steel user stands at the gates of the Vanderbijlpark factory with a truck to transport the steel, it will still pay all those charges.

Mittal SA does this because it can. There is virtually no local competition to the steel maker, which enjoys an overall market share of about 84 percent.

Harmony chief executive Bernard Swanepoel says the gold producer has spent R1.5 billion on steel in the past four years and has paid between 30 percent and 50 percent more than if it were able to buy steel at the same price that Mittal SA sets for its exports.

Outlining the argument that Harmony will present to the tribunal between March 15 and April 5, Jean Meijer, Harmony's attorney, says Mittal SA charges excessive prices because it has "market power", or "super market power".

In flat steel products, Mittal SA has 84 percent of the market, and Meijer says the threshold to indicate market power is a 45 percent market share.

She adds that whenever Mittal SA announces a price increase, other local steel producers, such as Highveld Steel and Vanadium, raise their prices within hours to match those of Mittal SA.

She says the competition authorities are investigating allegations of collusion between local steel producers.

"Mittal's export prices reflect its low production costs, as do the large volumes of exports," Meijer says. "Import-parity prices at home rather than export prices are indicative of the exertion of market power.

"Mittal Group is among the most profitable steel firms globally; Mittal SA's margins per ton are close to three times the average for the parent group."

Swanepoel says that if Harmony secures a favourable ruling from the competition tribunal that would make domestic steel prices comparable to export prices, it could save R1.7 billion over the next 15 to 26 years on investment in its mines in South Africa, assuming steel prices increase at about 6 percent a year, which is the top end of the Reserve Bank's targeted inflation band.

Mittal SA's spokesperson, Tami Didiza, said the firm respected the tribunal and would not engage on the issue through the media.

[Business Report and Independent Online Pty (South Africa) February 22 2006

It’s Mittal vs Tata Steel in South Africa

by Satish John, NDA-Money, Diligent Media (India), MUMBAI

5th February 2006

In the heart of Europe, the world’s No 2 steel-maker, Arcelor, is battling Lakshmi Mittal in a desperate attempt to stave off a possible takeover.

But there’s another battle in the making, this time involving an Indian company, Tata Steel. The oldest Tata group firm is challenging Mittal Steel for Highveld Steel, a South African steelmaker put on the block by its owner Anglo American. Anglo American own 79% in Highveld, which is the world’s leading producer of vanadium, used in the production of alloy steels.

Tata Steel officials had in November last year confirmed the firm’s interest in Highveld, even as Mittal Steel SA, the country’s largest producer of steel, was also eyeing it. If Mittal acquires Highveld, its steel operations would become a monopoly in South Africa, giving it tremendous pricing power.

On the other hand, the Tatas already enjoy a good rapport with the South African government, which has allowed them to buy a slice of the country’s No 2 telephony operator.

However, it’s not just Mittal versus Tata. Another consortium led by the UK-based Kermas group is also in the fray for Highveld Steel, which is South Africa’s second biggest steelmaker after Mittal SA. The Kermas Group owns South African ferro-alloys producer Samancor Chrome.

If they gain control, the Tatas are believed to be keen to split the vanadium and steel interests of Highveld, as vanadium would make the acquisition costlier.