ThyssenKrupp CEO Ekkehard Schulz Iron Ore Speculators 'Serious Threat' to Global Economy
Part 2: 'A Massive Bubble Is Threatening to Develop'
Schulz: The new pricing system opens the floodgates to speculation and manipulation. A massive bubble is threatening to develop in the natural resources market. Its dimensions could even exceed that of the real estate problem in the United States two years ago.
SPIEGEL: Now you're exaggerating.
Schulz: No, not at all. Year after year, about two billion tons of iron ore are consumed on the world market. Foreign trade accounts for about half of that. Only an extremely small portion of that total is sold on the spot market. But a few major contracts in that market are enough to massively manipulate the price. This hasn't been a significant problem until now, but with the new system, in which pricing is based solely on the spot market, this kind of influence affects the entire global trade.
SPIEGEL: Who would have an interest in that?
Schulz: Primarily the producers and the countries where they are based, which, in some cases, siphon off some of the profits in the form of special taxes. But we now know of a few major investment banks that are painstakingly preparing to enter the ore market.
SPIEGEL: Who are they, and how are they preparing?
Schulz: I don't want to mention any names here, but they are banks that were also involved in other big speculative bubbles. They are currently active in our markets, hiring natural resource specialists, buying trading companies and leasing storage facilities at major ports, where they can temporarily warehouse ore for speculative purposes. They see an opportunity to make billions in profits.
SPIEGEL: By driving up prices on the ore market?
Schulz: By disconnecting prices from the real economy and the natural resources from real consumption. This has already happened with nickel. Speculators and banks are already turning over 30 times as much nickel in the markets than is actually consumed in steel processing and other areas. In the process, the price per ton fluctuates between 10,000 and 50,000. Imagine a situation like this in a large-scale natural resource market like that of iron ore. The consequences would be devastating.
SPIEGEL: Many large corporations are establishing internal trading departments today and becoming involved in the market trading in natural resources. Is this an option for ThyssenKrupp?
Schulz: No, we do not wish to participate in such speculative profits. Of course, we have to protect ourselves against extreme price fluctuations. To that end, we too conduct transactions on the markets, in which, for example, specific quantities are ordered, more or less automatically, within specific price ranges. But in our case, there is a real economic purpose to these so-called derivatives, which allow us to hedge against price volatility.
SPIEGEL: This isn't the case with banks?
Schulz: No, with them it's purely a question of betting on certain price developments, and earning profits from buying and selling without any connection to the real economy. This trade in derivatives, as undertaken by funds and banks, urgently requires regulation. This is the argument we presented in Brussels and to the German government.
SPIEGEL: In the past ThyssenKrupp, unlike competitors like ArcelorMittal, failed to acquire holdings in ore mines. Isn't that the real reason for your concern?
Schulz: No. Speculation in natural resources is not just a problem for ThyssenKrupp. If we are not prepared to take decisive action against the natural resource speculators, they will become a serious threat to the entire steel industry and the global economy. We cannot allow that to happen.
Interview conducted by Frank Dohmen.
Translated from the German by Christopher Sultan.
- Part 1: Iron Ore Speculators 'Serious Threat' to Global Economy
- Part 2: 'A Massive Bubble Is Threatening to Develop'