NEW YORK (TheStreet) -- ArcelorMittal (MT) - Get Report, the world's largest steelmaker, plans to throw $4 billion at expanding its iron ore mines in a bid to mitigate the profit-squeezing effects of raw materials price inflation.
It's been a common theme in the industry worldwide since last year, as iron-ore prices rocketed higher on demand from the furious blast-furnaces of China. Then, in April, the world's biggest miners succeeded in forcing global steelmakers to jettison the annual contract pricing system in place in the
since the 1960s, in favor of a short-term contract tied to the spot market. As such, raw materials costs for steelmakers have grown volatile.
Above: ArcelorMittal's headquarters in the tax-haven of Luxembourg.
On Wednesday, the small U.S.-based producer,
, warned that the rising cost of iron ore on the world market would likely hurt its results even more than it had expected. AK said it had assumed a 65% rise in the global annual iron ore price on average for 2010. Analysts now believe that this year's average price will be double the levels seen in 2009. Unlike integrated steelmakers such as
and, to a lesser degree, ArcelorMittal, AK Steel does not control its own iron-ore mines.
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Rising raw materials costs have also hit mini-mill steelmakers, which use scrap metal as their primary feedstock rather than iron ore. Both
Arcelor was hosting its annual investor day Thursday at simultaneous events in New York and London, with speeches by the company's billionaire founder, Lakshmi Mittal, along with his son, CFO Aditya Mittal, and the head of the company's mining unit, Peter Kukeislki.
According to a
slideshow presentation on ArcelorMittal's web site
, Arcelor wants to boost its iron-ore production to 100 million metric tons a year by 2015. This year, its output will be around 70 million tons.
The company said that most of that growth would come from developing mines at deposits it owns in Liberia and Sengal in West Africa. All told, Arcelor said it controls iron ore reserves that contain some 19 billion metric tons.
-- Written by Scott Eden in New York
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