ArcelorMittal South Africa Ltd. (ACL.JO) said Friday that Kumba Iron Ore Ltd.'s (KIO.JO) decision to cut iron ore supplies to the steelmaker until it accepts an interim pricing arrangement, will force it to close a plant and reduce exports and domestic production.

"I'm profoundly disturbed with Kumba's decision as it will have a wider impact on the economy of this country, and will result in definite job losses in our business and the downstream industries," ArcelorMittal South Africa's chief executive officer Nonkululeko Nyembezi-Heita said.

"At this stage, I am expecting that about 3,000 to 4,000 jobs will be affected," she added.

A subsidiary of the world's largest steelmaker ArcelorMittal (MT), the South African unit has been locked in a dispute with Kumba, which is 63% owned by Anglo American PLC (AAL.LN), over a contract in which Kumba supplied a set amount of iron ore to ArcelorMittal each year at a price of 3% above cost of production.

Following ArcelorMittal's loss of rights to part of the Sishen mine--jointly owned with Kumba--due to a missed government deadline for renewing it earlier in the year, Kumba said that it wanted to break from the contract set in 2001 and sell at market prices.

Friday, Kumba said it would no longer supply ArcelorMittal with iron ore, after it rejected two interim pricing options, unless the steelmaker paid in advance and at prices closer to the market rate.

The increased prices will have a "devastating impact" on the steel industry, ArcelorMittal said, adding that the company is initiating plans for the immediate closure of its Saldanha plant, a curtailment of exports and to "drastically" reduce domestic production. It didn't cite figures for the cuts.

Kumba said from Aug. 1, ArcelorMittal South Africa can purchase iron ore at $50 a metric ton for delivery to its Saldanha steel plant or $80/ton for delivery to inland plants. That is up from the current $30/ton at cost plus 3%.

ArcelorMittal has been paying cost plus 3% for the iron ore during the disagreement, currently in arbitration. It also added a "Sishen surcharge" to its steel price due to the disagreement, even though it wasn't yet paying more for the iron ore.

Kumba said its own analysis indicated that Saldanha should remain profitable even at the higher prices.

South Africa's Department of Trade and Industry said that it wanted the dispute resolved so that it doesn't escalate to a point where it harms South Africa's economy.

"The DTI is available to mediate on this matter, if requested by either party," it said in a release. "The DTI will be assessing all options available to ensure that in the event of a failure of the parties to reach a responsible settlement, the economy does not suffer negative consequences."

-By Devon Maylie, Dow Jones Newswires; +44 (0)20 7842 9483; devon.maylie@dowjones.com
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