1/7/2009 by Beth Bily

(Photo: Ore excavation at the Minntac mine in Mt. Iron. Photo courtesy of U.S. Steel.)

The year 2008 had it all for iron ore mining: an extreme high followed by a deep low as global demand for taconite and steel weakened. But, at least one Iron Range development is escaping the economic crisis, so far.

Announcements of mining expansion, new investment and record profits during the first nine months of 2008 gave way to production curtailments and layoffs at year’s end.

• Production curtailed. In early November, Cliffs Natural Resources announced it will idle three pellet furnaces — two at Northshore Mining in Silver Bay and one at United Taconite in Forbes. The move reduces total taconite pellet production by 300,000 tons per month, about one-third of the capacity of the two operations.

• Layoffs loom. In early November Cliffs Natural Resources filed WARN (worker adjustment and retraining) notification that layoffs could be implemented at Hibbing Taconite, United Taconite and the Empire and Tilden mines it manages in Michigan’s Upper Peninsula. Federal law requires WARN notices in some cases when the potential for layoffs exceeds 50 employees for more than six months.

• Production halted. In early December, U.S. Steel said it will halt production at its Keewatin Taconite (Keetac) mine and mill unit in Keewatin for an undetermined period. Nearly 400 workers are impacted.

The worldwide slump in residential and commercial construction, a domestic auto industry in chaos and the global credit crisis are to blame, said experts, some predicting a drop in production and profits in 2009 by one-third or more. There also are predictions steel demand won’t return to mid-2008 levels for at least two years.

U.S. Steel officials won’t comment on how the slowdown might impact early 2008 plans for a $300 million expansion at KeeTac, currently under environmental review. The proposed project would boost pellet capacity from 3.6 million tons to 9.6 million tons and create 75 new jobs.

Meanwhile, the biggest investment project on Minnesota’s Iron Range, the $1.6 billion mining to steel making Essar Steel Minnesota, is still on. Why, in the face of such gloomy reports? Because the long range steel demand outlook is still positive, said Essar’s North American President Madhu Vuppuluri.

“We continue to move forward with this project. For the Essar Group, Essar Steel Minnesota is an important part of the group’s North American strategy, which includes our investment in Essar Steel Algoma (an integrated steel mill in Sault Ste. Marie, Ontario), as well. We are optimistic that steel demand will return to normalcy in North America and that the current (weak) market is a temporary phenomenon,” Vuppuluri said in a telephone interview.

The company maintains the development of Essar Steel Minnesota is a long-term investment in iron and steel and will serve as a feeder for Algoma. The project is to be constructed in phases and its 1.5 million tons in annual steel-making capacity won’t be fully online for at least five years. Essar Steel Minnesota also will have a 4.1 million ton annual pellet plant capacity and a 1.8 million ton direct reduced iron mill, at various stages of development.

Reuters news service reports prices for scrap steel — a key ingredient in some steel products — have fallen as much as 90 percent in the last few months.

Even though scrap steel prices have plummeted, investment in the future still is warranted, said Michigan State University taconite analyst Peter Kakela. He conceded the short-term outlook is “spotty to bad,” but thinks a rebound could come sooner than many others think, as early as the third quarter of 2009. His prediction for a faster recovery reflects continuing demand for steel from “BRICs,” the nations of Brazil, Russia, India and China.

“Future demand is more international than domestic,” he said. Growth and the need for infrastructure in those emerging nations will continue, although recession may slow the pace.

While growth, and thus steel demand, has slowed, an early December visit to the Iron Range by Banashri B. Harrison, Commerce Minister, Embassy of India, reinforced the view that demand will continue there.

Harrison told a crowd of hundreds that despite global recession, India anticipates 2008 economic growth of about 7 percent.

A mega-stimulus package that includes help for domestic automakers also should boost the near term outlook. Finally, the steel industry as a whole may benefit from its own rapid reaction to the decline this fall.More concentrated ownership than in previous downturns has made the industry more nimble in responding to changing market conditions.

Kakela said the industry’s rapid response and downsizing might mean less inventory build-up and a quicker resumption of production when demand improves.

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