Kumba: Lower Steel Price Won't Help S Africa Manufacturing Much

A lower steel price won't significantly help manufacturers in South Africa to increase output because steel accounts for only a small part of their costs, Kumba Iron Ore Ltd. (KIO.JO) said Monday.

Kumba has met and will be engaging further with the government to discuss the role steel and iron ore pricing and output expansion has on South Africa's economic growth.

South Africa's Department of Trade and Industry has said high steel prices have hindered the country's manufacturing growth and that low iron ore prices are important to keeping steel prices down.

"Lowering the steel price by 10% or more is not going to have a gigantic impact on output," said Robert Stillman of Charles River Associates, who summarized the papers on behalf of Kumba Monday. "Evidence from international studies shows that if you lower the steel price by 10% it's unrealistic to expect an increase in manufacturing output by much more than 2%."

In March 2010 a long-running deal to supply ore from Kumba's Sishen mine to ArcelorMittal South Africa Ltd. (ACL.JO) at 3% above the cost of production lapsed after the steel company failed to renew mining rights on a stake in the mine by a government-imposed deadline.

Kumba, a unit of Anglo American PLC (AAL.LN), said it expects to resolve the pricing dispute with ArcelorMittal SA in early 2012.

-By Devon Maylie, Dow Jones Newswires; [phone]; [e-mail]