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NOTE: This post also appears in the Hibbing Daily Tribune as part of a content partnership.
Economic effects of the global pandemic could reach taconite mines on Minnesota’s Mesabi Iron Range later this year.
U.S. automakers Ford, General Motors and Fiat Chrysler announced Wednesday they would close all American production plants in response to the COVID-19 viral outbreak.
According to WXYZ-TV in Detroit, Ford and Fiat Chrysler closed their respective assembly works Wednesday after employees tested positive for the virus. Others will close by the end of this week.
The shutdowns will last until at least March 30 when companies finish cleaning their mills. At that time automakers will re-evaluate the situation.
In response to the news, domestic steel and commodity stocks plummeted this week, especially U.S. Steel, ArcelorMittal and Cleveland Cliffs. These are the three largest iron ore producers in Minnesota.
KeyBlanc analyst Phil Gibbs told Bloomberg that these three companies will take the hardest hit from the auto industry shutdowns. He said the automotive industry consumes about 25 percent of U.S. steel and about 40 percent of American sheet steel.
Integrated steel mills produce most of the country’s automotive sheet using taconite pellets from northern Minnesota.
Local iron ore produces more products than just cars and trucks, however. Automotive steel accounts for a smaller share of total production than in the past. Furthermore, local mines maintained high production levels this week despite the pandemic.
But the economic impact of COVID-19 will scar most sectors of the economy. Analysts broadly agree that the United States economy is already in recession.
The Mesabi Daily News reported Monday that the United Steelworkers union and Iron Range mines were collaborating to mitigate Covid-19 risks. The nature of mining work allows more social distancing. But a significant drop in demand for ore would still lead to reduced production or shutdowns.
Copper is being hit even harder.
This week the price of spot copper dipped as low as $2.20 a pound before rallying slightly to $2.40. There was a world-wide surplus of copper before the COVID-19 pandemic, and this is making it much worse.
This is especially relevant to Northeastern Minnesota, since copper produced by our planned non-ferrous mines will be the most expensive copper in the world. The calculations used to plan the mines on the Range back in 2006-2007 occurred in the setting of $3.50 a pound copper, which would be $4.40 today, corrected for inflation. It is highly likely, as noted a few years ago by Antofagasta when they announced the acquisition of full ownership of the Twin Metals project, that mines cannot operate successfully and profitably at these prices, especially if they live up to their promises of preventing pollution from their operations and paying salaries and benefits typical of mining in Minnesota. Antofagasta said at the time that they would defer mining until the prices and world demand recovered, noting that they had a great plenty of copper for existing markets using their existing operating mines.
The takeaway here is that copper will be even more cyclical than iron in terms of employment on the Range. Since 2006, the price has fluctuated from a low of $1.29 in the depths of the Bush recession to as high as $4.42 as the Obama recovery ticked up. Now, after a long period of mild stagnation in the $2.50-$3.00 range over the last three years it appears to be rocketing down. The mines, had they been open, would certainly have closed for long periods during the down portions of the cycle, and miners, their families, and their communities would have suffered recurrent economic down cycles, once again having the familiar result of hollowing out our communities as extraction industries hit bottom.