Iron Range uncertainty endures even as iron ore surges

Keewatin Taconite as seen from the air. PHOTO: Peter Clevenstine, Mineesota DNR

Keewatin Taconite as seen from the air. PHOTO: Peter Clevenstine, Mineesota DNR

Last night, history professor Jeff Manuel and I spoke to a patient, nice-sized crowd at the Grand Rapids Public Library about the past, present and future of the taconite industry on the Mesabi Iron Range.

Our conclusion was as follows:

¯\_(ツ)_/¯

OK, perhaps that’s a little glib.

Point is, you look at the short term you get one picture (improving demand for iron ore). You long at the long term you get another picture entirely (a changing steel business moving away from traditional taconite pellets).

Take the volatility that already existed in the iron ore business, add the unpredictability of the world economy and a Trump presidency, and it’s hard to say what will occur. Good news? Bad news? Virtually anything is possible.

Setting the tone for any discussion of the Mesabi Iron Range taconite business is the fact that 18 months after shutting down, Keewatin Taconite, one of Northern Minnesota’s six remaining taconite plants, remains idle. The workers there exhausted unemployment benefits and now either have new work elsewhere or retrain at local colleges.

Dan Kraker at Minnesota Public Radio posted an excellent story Tuesday on what those miners are experiencing. Many laid-off Keetac workers enrolled in my classes here at Hibbing Community College. A book could be filled with what we don’t know about the future of their employment with U.S. Steel.

At the same time, demand for ore bolsters Cliffs Natural Resources, co-owner and operator of United Taconite, Northshore Mining and Hibbing Taconite. Cliffs will soon launch its new line at United Taconite (replacing an old one). Northshore also reopened, and Hibtac carries on with expansions to its pit. Meanwhile, ArcelorMittal’s Minorca Mine presses on, the only mine to never shut down throughout the 2015 downturn. Across the Range, trains move taconite down the tracks to Duluth, where the massive stockpiles from a year ago finally dwindled to normal amounts.

Both Cliffs Natural Resources and U.S. Steel, which owns Minntac (which never closed) and KeeTac (which is still down), have seen their stock prices jump by about 50 percent since the election of Donald Trump. The price of iron ore has also risen by almost that same percentage, and steel demand continues an improvement that started late this summer. As we wrote then, steel tariffs imposed by President Obama’s Commerce Department had the desired effect on foreign steel dumping.

By why no love for KeeTac? As Manuel pointed out, the U.S. Steel plant near St. Louis, near where he works, remains shut down. That plant was fed by Keewatin ore. The main product there was tubular steel for oil drilling and pipeline. Oil and gas do not yet enjoy the boost that iron and steel have seen.

In Kraker’s story on MPR, one economist offered this assessment for KeeTac workers:

“If I was a Keetac worker, I’d be making plans for a long shutdown,” said College of St. Scholastica economist Tony Barrett. “The pattern of these cycles is the steel industry generally does not come back to where it was at the beginning of the downturn.”

Despite several trade rulings that slapped new tariffs on imported steel, demand just hasn’t rebounded enough for U.S. Steel to reopen KeeTac. It almost feels like every downturn is a game of musical chairs. Perhaps this is the one where a major taconite plant has nowhere to sit?

As I said last night, this makes for interesting speculation. The market seems to like what Trump could do for mining and steel, but the industry still seems cautious.

The steel business is changing. Blast furnaces that consume good old Mesabi taconite are being replaced by electric arc furnaces that need nearly pure iron. They can use either scrap steel or direct-reduced iron. These operations now compete on the open market with traditional blast furnaces. The newer furnaces get more market share every year, while the old ones settle for less.

The Mesabi Range is billions of dollars of investment away from a viable direct-reduced iron product. Cliffs says they want to do it. Essar says they want to do it. But getting there will be hard, and it will require the full force of the U.S. and Minnesota governments to get it there. Without such help, the open market will eventually prefer cheaper options. In other words: imports.

Mining and steel companies have shown a strong tendency to wait and see, responding to demand whenever it crops up and trying to maintain demand as long as possible. This cautious attitude could pervade the next decade or more. With the speed of the booms and busts in our modern market, we might well be staring at another Range-wide idle in a couple years with the general thought that investing in new technology *would have been* a great idea two years ago.

That’s why the main message I have after last night’s presentation with Jeff Manuel is that only economic diversification will help our communities escape these cycles. Only investment in new value-added iron products will sustain our Minnesota mining industry for the long term. All of this will be more technical, more automated, than ever before. Which is why we also have to figure out how to take care of the workers we have — the day care providers, nursing assistants and service workers, to name a few groups — as well as the entrepreneurs we want to attract here.

Comments

  1. Steve Giorgi says:

    Diversification is no doubt critical to the long term survival of core Range communities, but that diversification needs to include the environmentally safe mining of precious minerals other than iron ore. All Range residents have to be vigilant and united in asking our Federal and local legislative officials to advocate that President Obama not place any moratorium on mining in the Rainy River Watershed before he leaves office. That would be an econic death knoll for the Range!

    • Non-ferrous mining, like the iron mines, comes with a shelf life.

      The estimates by the mining industry itself, and the state concurs, are that no non-ferrous mine source has ore that will last for more than twenty years of mining. Please note that that is years of mining, so that when shut downs due to cyclic demand, exacerbated by the fact that non-ferrous mines in MN will be the world’s highest priced source, occur, that will lengthen the time until the mines close completely, although the periodic shut downs will cause problems for miners, their families, and their communities.

      Added to that problem is that the non-ferrous mines will operate in an environment of increasing automation, including the potential for many workers living at remote sites, perhaps even in other countries.

      Opening non-ferrous mining operations will provide a considerable initial boost due to the construction of the mining, processing, and waste storage and treatment facilities. Once it settles down, non-ferrous mining will offer a very limited number of jobs in the area for a very limited time, with the added problem of severe cyclical operation that is at least as bad as in the iron business.

      That is not to say that it won’t offer a benefit. It will. But that benefit will not have much impact on the need to diversify the economy out of mining or else scatter our population elsewhere where there is ongoing employment.

      I keep thinking about Minnesota Power and its ongoing problems with finding enough steady industrial market for its huge generating capacity, forcing it to try to substantially increase rates for homeowners to offset their costs. It makes me wonder why we can’t offer server farms, cloud storage, and other IT infrastructure a good place to settle, with our low average temperatures an advantage to them, and with recapture of large amounts of waste heat usable to benefit other industry. Anybody?

      • Gray Camp says:

        I mostly agree with what you wrote:
        Pretty sure Twin Metals is / was planning a 30 year mine.
        I assume your automation comments are in regard to the mine(s) in Australia using automatized haul trucks? They are going to automate as much as they can which makes sense, but these plants do not intend to utilize this technology, and even if they did, most of the employees at these mines are going to be working on the processing and pollution control sides of the business rather than the extraction side of the business. I guess I’m not all that concerned about this.
        In regards to diversification, I guess I view the non-ferrous mining operations as more of a much needed bridge to buy us more time to diversify than a savior.
        I like your thinking on the server farms and related stuff. Has anyone done much research on this topic to see if it might make sense? Is it on the IRRRB or MN Power radar? It would be great that if it did happen if the beneficiaries were the residents (or companies) of the region rather than a company from outside the region. MN Power is planning on shutting down their two small Boswell Units as well as their Taconite Harbor unit due to lack of consistent demand (and the war on coal energy).

        • Automation also extends, perhaps to an even larger extent, to processing plants and waste treatment. In fact, the US has managed to lose about 7 million manufacturing jobs while actually increasing US manufacturing output to record highs, due to the fact that about 75% of those jobs have been lost to automation and technical change, with only about 25% lost to the much more highly publicized offshore production.

          This automation also means that the levels of skills required in the jobs created will be higher than past similar jobs. Workers may well be required to have skills in computers, math, and science, and many workers may be recruited from outside the area or even outside the US. Adding to the decreased impact on local employment will be the problem that the cyclicality in the non-ferrous metal markets mirrors the cyclicality in iron. During the last boom, as we all now recall with considerable nostalgia, Range mines were actually looking outside the region for mine workers, having more or less exhausted the available pool of qualified workers. We can expect much the same, especially since busts like the one we are just recovering from always are accompanied by some workers leaving the region and some switching to permanent careers outside mining.

          That will mean that the new mines, as I said earlier, will require large numbers of workers during the construction phases, many from out of the immediate area (I know the construction trades in Duluth are salivating over the projects,) very much smaller numbers of workers during the actual operations, including uncertain numbers from outside the area, and will be accompanied by high levels of cyclical unemployment as the mines react to the typical extreme fluctuations of price and demand in the metal markets.

          The notion that non-ferrous mining will have a significant impact once building is completed is a dream unlikely to come true, since the mines will typically employ fewer than 200 local workers each.

          As to server farms and similar operations: servers tend to be located in areas where electricity can be had at low costs, since electricity is their main ongoing cost. Lower ambient temperatures are an added bonus, since disposing of waste heat is another large issue. Recently, the largest focus has been in the Pacific Northwest, especially in the Columbia River region. Large hydropower plants with development costs long ago amortized, combined with the collapse of the US aluminum smelting industry, their former top customer for power, created an environment that made pricing for large demand electricity customers aggressive.

          The major players in that field are not neophytes, and can be expected to be aggressive negotiators, including Amazon, Google, Facebook, and Microsoft. The industry is highly concentrated, since many companies that appear to be large users actually deal with those companies — for example Dropbox buys its server and storage capacity from Amazon.

          As far as coal issues, if there are markets for energy, conversion of coal plants to fuel with gas, oil, or even biomass is fairly easy to accomplish. Demand is far more important in the equation than coal issues, and a lot of the decrease in use of coal just now is not due to any “war,” but rather to high available supplies of natural gas being actually cheaper to use than coal due to lower transportation, storage, and handling costs and ease of operation that requires — once again — fewer workers. Generators have switched to gas due to bottom line issues, not regulation, although they are very fond of making a lot of noise to suggest otherwise, based on general principle.

      • Independant says:

        Twin Metals permit plan may have been for 30 years but their reserves total 80 years of recoverable ore in their underground mining operation from what I was told at a public meeting held by them a couple years ago.

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