Lakshmi Mittal warned yesterday that the impending large rise in the cost of iron ore would lead to "new volatility" in the steel industry by pushing up prices of the metal - a development, he said, that could harm the competitiveness of some ArcelorMittal European plants.
The chairman and main owner of the world''s biggest steelmaker said the company had started informing customers in Europe about the upcoming price rises. "I don''t expect them [customers] to be very happy, but there''s not much we can do about it," Mr Mittal told the Financial Times.
Mr Mittal said the changes in the pricing system for iron ore - agreed by the main producers of the commodity - could push up the cost of making steel by a third in the coming months and that ArcelorMittal would do all it could to pass on these costs by raising prices by a corresponding amount.
"It [the changes in the pricing system] will require adjustment by the steel industry and also by customers," Mr Mittal said.
While the company has extensive iron ore mining operations that to some degree will insulate it from the impact of the price increases, its mines are some distance from its big factories in Europe - predominantly in France, Belgium and Spain - and are used instead to feed its mills in countries such as the US and Kazakhstan.
"Practically all the iron ore that our European plants require is brought in from external suppliers as opposed to coming from inside the company."
It was inevitable, he added, that the price rises would make the European plants less competitive. But ArcelorMittal will try to counter this not only by trying to persuade customers to take the biggest share of the extra costs but also by internal measures such as raising productivity. The steelmaker''s European sites account for just under 40 per cent of group output. Mr Mittal said he was worried by growing investor fears about large government deficits in European countries.
"Clearly this could have a negative impact on the European economy, and I am hoping for greater stability in the coming months," he said. But he added that the weak euro was benefiting the European plants.
Mr Mittal was speaking after ArcelorMittal unveiled a 114 per cent year-on-year rise in underlying earnings in the first quarter to end-March.
Earnings before interest, tax, depreciation and amortisation for the Luxembourg-based group were $1.89bn (£1.23bn), against $883m last time, and within its previous guidance of $1.8bn-$2.2bn.