May 20 (Bloomberg) -- ArcelorMittal South Africa Ltd., a unit of the world’s largest steelmaker, defended its decision to impose a surcharge on steel from the start of May as the country’s Competition Commission considers whether the move was anti-competitive.

The steelmaker doesn’t “believe this is contravening the South African competition act,” spokesman Julian Gwillim said in an interview in Johannesburg today. The company had no option but to impose the charge after Kumba Iron Ore Ltd., which supplies two-thirds of its ore needs, canceled a nine-year old supply agreement, he said.

South Africa said on March 30 it would refer ArcelorMittal South Africa to antitrust authorities for “abuse of dominance and excessive pricing.” Trade and Industry Minister Rob Davies wants the “most vigorous remedies” imposed on the steelmaker if it’s found guilty, Business Day reported on May 19.

ArcelorMittal South Africa, based at Vanderbijlpark in the country’s Gauteng province, introduced the charge from the beginning of May based on the spot price of iron ore. “For deliveries from May 1, the surcharge is approximately 600 rand ($75) a ton,” Gwillim said. From June 1, “it will be dependent on the prices charged by Kumba.”

While South Africa’s Competition Commission is looking at the surcharge, it has yet to start a formal investigation, said Keith Weeks, manager of enforcement and exemptions at the regulator, by mobile phone today. “It may happen within the next three weeks.”

Disputed Ore Contract

ArcelorMittal South Africa is in dispute with Kumba over an iron ore supply agreement under which it buys the steelmaking ingredient at 3 percent above production costs. The contract was agreed in 2001 as part of the split of Iscor Ltd. into separate steel and mining companies. While at the time the pact was deemed necessary for the steelmaker’s survival, it now limits Kumba’s ability to benefit from higher ore prices.

The dispute is in arbitration and could take as long as 18 months to resolve, Nonkululeko Nyembezi-Heita, chief executive officer of Africa’s largest steelmaker, said on April 29.

Kumba, 63 percent-owned by Anglo American Plc, will supply the steelmaker at “a reasonable market-related price” until the dispute is resolved, the miner said in an e-mailed response to questions.

“We will await the outcome of the Competition Commission’s inquiry” before commenting, Department of Trade and Industry spokesman Sidwell Medupe said by mobile phone today.

Shares in ArcelorMittal South Africa have fallen 32 percent since Feb. 26, when Kumba announced it was canceling the contract, and lost 4 rand, or 4.9 percent, to close at 77.50 rand in Johannesburg today. Kumba, which has declined 10 percent during the same period, closed down 11.49 rand, or 3.6 percent, at 306.51 rand.

--Editors: Alastair Reed, Tony Barrett.

To contact the reporter on this story: Ron Derby in Johannesburg at rderby1@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net

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