Johannesburg — REMARKS by ArcelorMittal CEO Mittal CEO Nonkululeko Nyembezi-Heita yesterday reinforced what Kumba Iron Ore's CEO has said about the prospect of the two companies reaching a long- term supply agreement, and avoiding a lengthy and expensive arbitration.

If an agreement is reached sooner than the two- year arbitration time frame - which both companies have warned the market about - it would give Mittal a base from which to plan for a 25% capacity expansion.

An early agreement would also allay the government's fears about job losses and the negative effects of more expensive steel on exports and growth.

"The continuation of the arbitration process does not rule out the possibility that a new long-term agreement can be negotiated ... before the expiry of the interim agreement (reached last week)," Ms Nyembezi-Heita told a results presentation yesterday. "I've seen sufficient goodwill on all sides to make me think this will work," she said, adding that a long-term agreement had not yet "taken any shape". "I don't think the positions of the companies have changed that much," she cautioned. "I would say the time frame for a long-term pricing agreement is measured in months rather than years."

Mittal, with a 76% share of SA's steel market, is to drop a surcharge it had imposed on clients from May 1 and will introduce a new, cheaper price mechanism from August.

Kumba had argued that Mittal not converting a 21,4% stake in the Sishen iron-ore mine to a new-order right meant a favourable supply agreement for 6,25-million tons of ore a year fell away and it would charge a commercial price. Mittal argued the mining right and the supply agreement were not linked and the matter would go to arbitration that could take 18- 24 months to resolve.

The parties agreed in an interim deal last week that Mittal would pay a flat rate well below world iron-ore prices up to the end of July next year.

Ms Nyembezi-Heita's comments are similar to Kumba CEO Chris Griffith 's last week, when he also raised the prospect of a long- term pricing agreement to avoid the arbitration process.

Kumba has two options on the iron ore it sells to Mittal if it is unhappy with prices.

It could leave it in the ground due to transport constraints on exports and run the risk of lower ore prices when that bottleneck is resolved, said Shoaib Vayej, head of resources at Sanlam Investment Management.

"Or they could sell it at a slight discount to market prices, meeting Mittal in the middle and still benefit partially from higher iron - ore prices," he said.

The government wants the companies to reach a settlement that would maintain a viable domestic steel sector with attendant benefits for downstream industries that use steel.

Kumba has said it would "consider value sharing" if it won the arbitration and "rightfully" received the mineral right, which reverted to the state in April last year and was awarded to Imperial Crown Trading 289 in suspicious circumstances.

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