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ThyssenKrupp CEO Ekkehard Schulz: Iron Ore Speculators 'Serious Threat' to Global Economy

Changes in the pricing system for iron ore have opened up possibilities for speculators, warns the CEO of steel producer ThyssenKrupp CEO in a SPIEGEL interview. The result could threaten the global economy and cause a bubble even bigger than the one that triggered the subprime crisis in the US.

Photo Gallery: Threat of a Natural Resources Bubble Photos
REUTERS

SPIEGEL: Mr. Schulz, while the world economy is ailing, steel prices are climbing to new highs. How does that fit together?

Ekkehard Schulz: It's easy: As a steel producer, we depend on massive quantities of mineral resources. We need coking coal, nickel and, most importantly, iron ore. In recent months, prices of the latter resource, in particular, have downright exploded. We can't do anything to compensate for that fact.

SPIEGEL: We're familiar with that line. It's always someone else's fault.

Schulz: In this case, it's correct. There are only a few large iron producers in the world. They are located in Brazil and Australia. And we are completely at the mercy of the prices they set.

SPIEGEL: You are referring to mineral resource giants like Rio Tinto, Vale and BHP Billiton. But ThyssenKrupp has been working together with them for years. What has changed?

Schulz: The contracts. In the past, we always signed calculable annual contracts with the iron suppliers, contracts in which the price was set for the entire term. Now the three producers that dominate the market have suddenly dictated quarterly contracts, in which a new price that is linked to the volatile spot market is set for each quarter. This has fatal consequences.

SPIEGEL: In what way?

Schulz: Last year, we were still paying about $60 (€48) per ton of iron ore from abroad. Now it's more than twice as much. And the price on the spot market has gone up even further since the last contract was signed. The new system is currently driving up the price of steel more and more, thereby jeopardizing overall economic development.

SPIEGEL: But it isn't unusual that a price changes on the market and that it continues to rise as demand increases.

Schulz: That's correct. But iron ore isn't even scarce. Unfortunately, it just happens to be controlled by a few large producers. And they are irresponsibly taking advantage of their power in the marketplace.

SPIEGEL: Those are serious charges. Can you back them up with evidence?

Schulz: The German Federal Cartel Office in Bonn, as well as the European Commission, are looking into the case, and we are supporting them in their efforts. Besides, we have also asked the German government for help.

SPIEGEL: What should it do?

Schulz: The government has promised us that it will address the issue at the next G-20 summit of world leaders in Toronto in June. It intends to advocate a fair and sustainable balance between nations that process natural resources and those that produce them.

SPIEGEL: Isn't it somewhat excessive to be addressing the issue in such a forum? We're talking about the pricing system for iron ore and steel …

Schulz: … and therefore the entire global economy. In Germany alone, more than 35 percent of industrial added value depends on steel. It would be impossible to calculate the cost of any bridge, high-rise building or auto production if the price or iron and, as a result, steel were constantly changing and became a pawn for speculators.

SPIEGEL: What role do speculators play?

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Graphic: Price of Chinese iron ore Zoom
DER SPIEGEL

Graphic: Price of Chinese iron ore



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