"The threat of massive price increases for iron ore and coking coal remain as significant risks to the economic recovery in the steel markets," warned today Hans Jürgen Kerkhoff, president of the German steel federation Wirtschaftsvereinigung Stahl (WV Stahl).
"Even a ten percent increase in prices charged for these raw materials will increase the annual costs of the steel companies by more than half a billion euro," added Mr. Kerkhoff.
Kerkhoff also said that the mentioned price increases in raw materials cannot be afforded by the steel industry and the development in the commodity markets stands in contrast with the still fragile economic situation in Germany and in the European Union.
In Germany, many steel plants still operate at reduced capacity utilization levels. Kerkhoff said that they observe with concern the iron ore producers wanting to leave the annual benchmark pricing system and seeking to adopt contracts with shorter terms, which would result in higher costs, strong price volatility and less predictability for the entire value chain to follow.
In 2009, world iron ore output totaled approximately 1.9 billion metric tons, including
800 million metric tons of ore traded overseas. About one third of the total commodity is supplied from Australia and Brazil, while the rest is supplied from various countries, like Sweden or South Africa. However, as Kerkhoff pointed out, three major companies, Brazil's Vale, the world's largest iron ore miner with a market share of around 33 percent, the Australian miner Rio Tinto, number two with 19 percent, and Australia's BHP Billiton with 17 percent represent more than two thirds of the overseas iron ore trade.