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Iron Ore price increase bringing the Steel Industry to its knees

28/06/2010 | 23:48:45 | Daanish Ellias

 Our laments about unjustified price increases and their damage to the economy and the steel industry itself have found their echo in the following interview of Thyssenkrupp  CEO Ekkehard Schulz:

 
http://www.spiegel.de/international/business/0,1518,697930,00.html
 
Do read it. The comments are strident and justified about the 100% price increase on Iron Ore and the damage it will cause to the economy as a whole. Our views are complete in sync. The steel industry is unable to pass these costs as buyers withhold their purchases and users actually find substitutes.
 
Unfortunately the Australian Government`s taxation proposal on the abnormal super profits of the mining industry is not finding backing within the country. Surely the greed of 100% price increase by the mining industry needs to be curbed for the greater interest of the steel industry and the fragile global economy. We have seen the havoc of the unbridled greed on Wall Street.
 
Unfortunately greed is universal. And even the steel industry has shown its repeated impunity to raise prices unjustifiably and on even existing contracts and indulge in rationing and profiteering. The shoe is of course now on the other foot. It is obviously a heavy shoe,...a leaden one that is dragging the entire industry down a hole. It has a greater potential for damage because the iron ore mining industry is controlled just by three or rather two players.
 
Fortunately the Chinese Government has announced withdrawal of  export benefits on steel which should curb its voracious appetite for iron ore. It is a sensible move because the steel exports of China (and its over capacity) is feeding a pricing frenzy by the mining industry. Ironically by subsidizing its own steel exports, China was transferring its revenue to the rest of the world while raising its own cost of production. A double whammy indeed. 
 
It will be interesting how the situation plays. The mining industry can only meet their match with the Chinese. Lets hope the Chinese prevail and stay dogged in curbing their exports and cutting their over capacity. It will be in their own interest and of course in the interest of the industry and the global economy.
 
dtd. 28/06/2010
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