With contracts looming, Range mines crunch numbers

"Together We Can Do It! Labor. Management. Keep `Em Firing!" from the U.S. National Archives' series: War Production Board (Record Group 179) Created by: Office for Emergency Management. War Production Board, (1942-1945). Creative Commons license

“Together We Can Do It! Labor. Management. Keep `Em Firing!” from the U.S. National Archives’ series: War Production Board (Record Group 179) Created by: Office for Emergency Management. War Production Board, (1942-1945). Creative Commons license

No matter your job or politics, ten dollars is always ten dollars.

By some reports, that’s how much money some Iron Range mines need to shave off their cost for a ton of taconite iron ore to survive the coming global steel industry contraction.

John Myers at the Duluth News Tribune reported on this last weekend, highlighting the ways in which Cliffs Natural Resources, Arcelor-Mittal, and U.S. Steel (the company with the most announced layoffs so far) might get there.

Iron Range mines produce ore at a cost usually in the high $50s per ton. That’s at or above the current price of taconite worldwide.

It’s a tough road to get that $10. For instance, a new measure that allows taconite producers to seek lower electric rates and breaks on state mining lease payments will only get a small percentage of those cost savings. The rest will come in the form of cuts to purchasing from vendors and … you guessed it … possible requests for concessions in this summer’s negotiations with the United Steelworkers. Both of those moves will directly affect Iron Range workers and their families.

Whether the company wins concessions from the union or not, it seems likely that some kind of regional contraction, or at minimum some kind of corporate reorganization, will occur at Range mines. With Essar coming online with North America’s cheapest pellet next summer, it’s hard to imagine six mines producing more expensive pellets staying that way for very long. Sure, this is speculation, but it is my working hypothesis. I believe that some mines will cut costs and produce value-added products, while others will close or merge with neighboring operations.

The Mercury News in Australia are among many outlets reporting the falling price of iron ore, which had enjoyed a brief mini-recovery this late spring. The grim news:

Analysts believe there is little respite ahead as the Chinese summer is seen likely to be slow for the steel sector, with Citi last week reiterating its call for a fall into the $US30s at some stage this year.

“We still forecast iron ore to decline below $US40 a tonne by end-2015 as increased low-cost supply and negative steel conversion margins weigh on the market,” a Citi note read.


Meantime, you can see what mining is all about during summer tours of Hibbing Taconite, or see what a taconite mine looks like as it’s being built from my recent tour of Essar’s project near Nashwauk. It helps to have a heathy understanding of both how iron ore mining shapes the current Range economy, and how fragile that industry is worldwide. When you understand these things together, you might better understand the monumental challenges we on the Iron Range face together.

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