Northeastern Minnesota’s iron ore industry will have a solid year in 2019. But not quite as good as 2018.
Total iron ore pellet production at the region’s six iron ore mining facilities is projected to reach 37.0 million tons in this year, according to Minnesota Department of Revenue Minerals Tax Office estimates.
That’s a good year.
However, total production is down a little more than two million tons from the 39.1 million tons produced in 2018.
Some of the decline is attributed to harsh winter weather at the beginning of 2019, which impacted the mines and processing plants. At the same time, the industry is coping with lower steel prices, high raw materials costs, a glut of domestic steel, reduced demand and continued pressure from foreign steel imports.
As a result, some steelmakers have idled blast furnaces and reduced pellet production capacity.
“I think the capacity utilization rate in the steel industry has started to decline a little bit, but not to where it’s worrisome,” said Kelsey Johnson, president of the Iron Mining Association of Minnesota. “China has not taken any steelmaking capacity offline and in fact has moved to add more capacity.”
During 2019, Northeastern Minnesota iron ore plants invested hundreds of millions in new mining and processing equipment to ensure long-term cost competitiveness, she said.
“A lot of investments have been made in our taconite facilities by ArcelorMittal, Cleveland-Cliffs and U.S. Steel that position themselves to weather any future storm,” said Johnson. “I think in the first quarter of 2020, we will see capacity utilization rates stay about the same as they are now, but in in the remainder of 2020 we will see an overall increase in capacity that we will be a part of.”
U.S. Steel’s Minntac Mine in Mountain Iron, the largest iron ore facility in North America, had the biggest production drop in 2019. Total production for 2019 is expected to be 12 million tons compared with about 13.4 million tons in 2018, according to the Minnesota Department of Revenue Minerals Tax Office. That alone accounts for about 1.4 million tons of the industry’s total 2.1 million ton decline.
U.S. Steel in October moved to idle Line 3, one of its five pelletizing lines at Minntac, citing soft market demand.
Northeastern Minnesota’s six iron ore mining and processing facilities produce iron ore pellets that contain iron. The pellets are fed into blast furnaces at traditional integrated steelmakers to make steel. The six facilities account for two-thirds of the iron produced in the United States.
Dependent on domestic and global steel markets, iron ore pellet production at Northeastern Minnesota’s plants has historically been cyclical. As the domestic steel industry goes, so does Northeastern Minnesota’s iron ore industry.
Impacted by deteriorating market conditions, U.S. Steel idled blast furnaces at its Gary Works in Indiana and its Great Lakes works in Ecorse, Mich. ArcelorMittal in November announced the shutdown of its No. 3 blast furnace at its Indiana Harbor West steel plant in East Chicago. With rebuilding the furnace a costly investment, ArcelorMittal said it has reached the end of its life.
The furnace idlings have industry observers concerned about pellet production.
“There’s been a substantial decrease in blast furnace operations that will definitely impact the amount of iron ore needed,” said Don Fosnacht, associate director/director Renewable Energy at the Natural Resources Research Institute in Duluth. “There’s been about a five million ton decline in pellet need.”
Troubling factors include excess domestic steel production, declining steel prices and a slowdown in automobile sales, he added. Scrap prices have also plummeted, providing an advantage to modern mini mill steelmakers that use scrap to make steel.
Domestic steel shipments in September 2019 declined 8.3 percent compared to August 2019 and 0.6 percent from September 2018, according to the American Iron and Steel Institute. Shipments totaled 7,667,310 net tons in September 2019 compared with 8,472,088 net tons in August 2019.
Financially, American steel and iron ore companies are feeling the pinch, reporting reductions in revenue and challenging market conditions.
“The steel companies are now taking some action by reducing production,” said Fosnacht. “But the things that are happening now are worrisome for sure. There’s some troublesome things on the horizon.”
Locally, U.S. Steel in early November trimmed nearly 40 salaried employees at its Minntac and Keetac operations to become a “leaner, more efficient organization,” according to the company.
Even with the terminations, a union official at Keetac says they’ve been told by local management that, for now, it remains “business as usual.”
“I’m optimistic,” said Dan Pierce, president of United Steelworkers Local 2660 at Keetac in Keewatin. “If we can keep costs down and keep moving forward, we’ll come out of this. It’s just a matter of whether you can weather the storm.”
Dan Hill, president of USW Local 6860 at United Taconite in Eveleth and Forbes, says workers are watching industry trends. But workers appreciate owner Cleveland-Cliffs making substantial investments in the facility that position it to better survive downturns, said Hill.
“We’re tightening the belt up at work, but we’re not as scared as we were in 2015,” said Hill. “The market is not as strong as it has been, but we’ll have a better chance of getting through it because of being able to make two different types of pellets, the Mustang pellet and a standard pellet. There’s been way more capital investment made than ever here since Lourenco Goncalves came in as CEO. It’s very nice to see the investment. It’s really opened our eyes as to what we can do.”
Globally, iron ore production is forecast to rise 0.9 percent annually from 2,850 million net tons to 3,198 million net tons from 2019 through 2028, according to a report by Fitch Solutions, a worldwide business consulting firm. Much of the increase comes from a Vale mine expansion in Brazil and higher output from India, according to the report. The 0.9 percent increase is far less than a 2.9 percent average growth rate predicted earlier.
China’s output will slip due to poorer iron ore grades and resulting increased production costs, said the report.
It’s always difficult to predict the iron ore industry’s pellet production from year-to-year. However, early indications are that pellet production will increase in 2020 compared to 2019, according to Minnesota Department of Revenue Minerals and Tax Office estimates. Depending on the severity of winter weather and the health of the domestic and global steel industry, others agree.
As winter winds down, iron ore pellet shipping resumes in March on Lake Superior and iron ore pellets stockpiled in Duluth, Superior, Two Harbors and Silver Bay begin to flow to steelmakers again.
“If we can get all the pellets off to our ports, we will be in good supply,” said Johnson. “As long as the Soo Locks are open, we will be able to meet demand.”
“It’s going to be a good year, keeping in mind that it could downturn even more if things don’t happen politically,” said Hill. “The (steel) tariffs kind of helped, but it’s not an answer at the end of the day. Steel dumping is still an issue.”