Arcelor Mittal Goes Mining

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Ferrous Metals, Global Trade

If you can’t buy them, build them, seems to be the philosophy driving the major steel mills investment in new mines. A recent report in The Wall Street Journal details the challenges steel companies are facing in turning themselves into miners. Arcelor Mittal has purchased the rights to develop the old Liberian-Swedish-American mining company Lamco’s facilities in Liberia, closed in 1989 during the first of many civil wars and coups to blight the country in the 90’s. Mittal see this as one component of a hub of West African mining operations strategically placed to feed both their European and North American steel mills. The challenges are significant, since railway lines, bridges and roads have been lost over the last 20 years of strife. Prospective miners will need to rebuild the infrastructure before they can move one ton of iron ore. Project costs have already escalated from $900m to $1.5bn, and the mine isn’t due to start production before next year.

Still, no one doubts Mittal will succeed. The question on consumers lips is, will it make any difference to the price of steel? Producers are already under fire for allegedly inflating price increases beyond what is necessary to cover rising raw material input costs. Reports we have received from the suppliers to the North American industry support this view, saying that many steel producers are on long term — by which they mean 3-7 year — iron ore contracts and the prices they are currently paying are significantly below the inflated world market prices paid on recently concluded contracts — never mind the astronomical spot market price.

Experience suggests we should not hold our breath waiting for the benefits to pass to consumers.

–Stuart Burns

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