From Gareth Stokes, MoneyWeek editor,

Dear Money Morning Reader,

Monopoly is great as a board game, but results in untold suffering when applied in the world of industry. If you want to see the impact of monopoly on business you need look no further than the bitter battle raging between steel producer ArcelorMittal (JSE: ACL) and its key iron ore supplier Kumba Iron Ore (JSE: KIO). The dispute centres on an unattractive supply contract concluded between the two parties when then stateowned steel and ore company Iscor spun off into a steel business (now ArcelorMittal) and an iron ore supplier (Kumba). In terms of the contract Kumba would supply ArcelorMittal with 6.25 million tonnes of iron ore per year at cost plus 3% in perpetuity. Instead of earning near the spot rate of $150/tonne for its ore, the group is getting a measly $25!

Kumba has clearly had enough... Two weeks ago it won an arbitration ruling declaring it needn’t honour the contract price for new iron ore mined at its Sishen South operation in the Northern Cape. Moments later, emened by this victory, Kumba announced it would halt all supplies of dirt-cheap iron ore. ArcelorMittal reacted by suspending trade in its shares – an expected move given the possible R4bn dent in its bottom line. Kumba shares surged on the news – up 7% on Friday, 26 February.

Government, through Alec Irwin, was instrumental in carving out the fixed cost agreement when it divested from Iscor years ago. But they’re not happy with how ArcelorMittal applied the reduced costs at an operational level. The company never passed on the negotiated savings to local steel consumers, preferring instead to price its steel on the domestic market using a  complex import-parity pricing model. The group was fined R692m by the competition authorities for uncompetitive behaviour in this regard. Although ArcelorMittal has since changed its domestic pricing model to reflect steel prices in the US, Germany, Brazil and China, there is still some dissatisfaction.

The steel industry isn’t alone under the cosh. Equities Research provided by Credit Suisse Standard Securities (CSSS) suggests further caution around banking sector shares. They say the latest impairment charges from Absa and Nedbank conceal two important elements, namely the extent of portfolio impairment releases and half-yearly specific impairment charge growth. Absa reported a 24% portfolio impairment release (of some R367m), while Nedbank only released 3.5% (R70m). “The tone of ABSA and Nedbank management’s outlook for impairment charges and provisions in FY2010/11 appears to support our cautious sector outlook,” says CSSS. You will have a fuller picture of the sector after Standard Bank and FirstRand report their results on 4 March and 9 March respectively. And banks will face further challenges as National Treasury turns the microscope back on bank fees.

Banks and resources shares aside, you’re entitled to feel a bit down on South African equities right now. There haven’t been any fireworks from the down-and-out motor retailers, house prices remain soft and Eskom remains hell bent on putting the brakes on the first stages of economic recovery. No wonder  the fund managers in the know are focussing on offshore equity opportunities.

Turning to the markets...

The JSE all share index advanced 0.47% yesterday. The gold mining index gained 0.28%. Resources added 0.9%. Banks and financials grew 1.01% and 0.25% respectively. Industrials bounced 0.14% and the platinum mining index jumped 0.26%.

London's FTSE100 climbed 1.31%. The Dow Jones collected 1.17% and the Nasdaq closed up 1.48%.

Tokyo's Nikkei gained 1.84%. Hong Kong's Hang Seng added 1.92%.

Brent crude is currently trading at $80.38 per barrel.

Spot gold's trading at $1,135.85 and platinum was last quoted at $1,587.50.

And here's how the rand is performing against the major currencies:
R/$7.44
R/₤11.27
R/€10.15