Cleveland Cliffs Inc (CLF)

[Saving Grace]

Half back: Better times on the Range

After the worst year on Minnesota's Iron Range in decades, with a majority of the region's mining operations closed and thousands of people laid off, the worst seems to be over.

At various times in 2015, eight of those 11 mines and processing plants were closed. Now, it's down to five, with the largest operations either up and running or set to open by October.

U.S. Steel's Minntac operations in Mountain Iron, which incurred shutdown with layoffs for a short time last year, is running full bore, as is Hibbing Taconite and ArcelorMittal's Minorca Mine in Virginia —two that never idled — and Cliff's Natural Resources Northshore Mining in Silver Bay and Babbitt, which had been fully closed for several months.

Cliff's United Taconite operations in Eveleth and Forbes are set to reopen in October after a yearlong shutdown, company officials announced last week, and will be expanding to handle a new kind of pellet.

The doomsday predictions by some pundits that this downturn would be different — that it would be permanent — that the traditional cycle of mining's ups and downs was broken for good, didn't pan out.

"It's good news for people in Eveleth and Silver Bay, and good news for the Iron Range, and good news for Cliffs' leadership that they may have saved that company from demise," said State Rep. Tom Anzelc, DFL-Balsam. "It does feel like the bottom may have bottomed out and we are moving up again."

Others agree.

"With United Taconite coming back online, and with Cliffs already having brought its Northshore Mining operation to full production, I'm hopeful that we're seeing the beginning of a real turnaround for our Range economy," U.S. Sen. Al Franken said in a statement on the United Taconite news.

U.S.-based steelmakers are churning out more steel again as foreign-based producers, especially in China, have been knocked back with steep tariffs imposed by the U.S. government after their steel products were found to be sold for below cost — so-called steel dumping.

"It does seem like this trade crackdown — the efforts of Klobuchar, Franken and Nolan — really did help this time," Anzelc added.

Because Minnesota's iron producers are far more tied to domestic steel production than global ore prices, the continuing strong U.S. economy is helping with the Iron Range recovery. Demand remains strong for steel for automobiles and construction steel (not so much for tubular steel for oil pipelines) so U.S. steel mills are gobbling up more Minnesota taconite iron ore and related products.

The American Iron and Steel Institute reported last week that U.S. mills were using 76 percent of their capacity, up 4.2 percent from the same week in 2015 and up 1.1 percent from the week before. (At one point last year nearly 40 percent of U.S.steelmaking capacity sat idle.)

Thanks to U.S. government trade actions "the glut of illegal foreign steel in the U.S. marketplace is declining. Steel imports have dropped by almost 34 percent since the Department of Commerce imposed tough new preliminary tariffs," said U.S. Rep. Rick Nolan., D-Crosby, in heralding last week's United Taconite scheduled reopening. "The cripplingly high tariffs and taxes the (Obama) Administration has imposed on steel from China have helped reduce the glut of foreign steel in the U.S. market. The price of Range iron ore is on the rise."

Smaller for good?

Despite the string of good news, however, all's not well on the Range.

Five operations that employed more than 800 people as recently as 2014 remain shuttered — including U.S. Steel's Keetac operations in Keewatin, the Mesabi Nugget iron nugget plant near Hoyt Lakes, the Chisholm iron recovery operation that supplies Mesabi Nugget (co-owned with Magnetation) and two of three Grand Rapids-based Magnetation iron recovery and processing operations are closed with no sign if or when they will reopen and the parent company mired in a yearlong bankruptcy.

There are signs that this downturn may have spurred a long-lasting or even permanent downsizing of the Iron Range mining industry, with some demand and production never to return.

"History tells us that every time we go through one of these cycles, one of these major downturns, that when we come back, we come back smaller," Anzelc said.

That happened in the early 1980s, after taconite production peaked in 1979 at more than 54 million tons, it plummeted due to the crash of the domestic steel industry, to just 23 million tons by 1982. Employment tanked at the mines, and across the region people moved away. St. Louis County alone lost 20,000 people in the 1980s and never got them back.

Production and employment bounced back, with production peaking again 45 million tons in 1995, before dropping again since then, with a low of 17 million tons during the global economic crash of 2009. The latest peak was just under 39 million tons in 2012.

Mesabi Nugget's parent company, Steel Dynamics, Inc., said the facility wouldn't open until at least 2017, but also said the closure was indefinite, with the facility never meeting company expectations for production or profit.

Keetac's future appears to be tied to U.S. Steel mills that make tubular steel, an industry sector tied to the sluggish domestic oil industry that has reeled back from unbridled exploration and production.

Magnetation said its two shuttered plants have higher operating costs than its newest and largest plant just outside Grand Rapids that remains operating. Right now, the newest plant is making all the recovered iron ore concentrate the company needs for its single customer, AK Steel, and it's unclear if the Keewatin and Bovey facilities will ever reopen.

There's also no indication if or when Essar Steel Minnesota's proposed all-new taconite iron ore mine and processing plant will open. The plant in Nashwauk sits half finished, with construction at a standstill since December and creditors filing suit for unpaid bills. The company is desperately looking for equity partners, is said to be considering bankruptcy protection, is past-due on more than $60 million owed the state and last week lost its major outside contract for taconite pellets — iron ore that was supposed to go to ArcelorMittal steel mills — to Cliffs Natural Resources.

Investors who hold the delinquent bonds for the Essar project are working with Iron Range officials and businesses to see if the project can be salvaged, with or without Essar's involvement, Anzelc noted.

But even if the project can be completed, it's not clear who would buy the taconite pellets produced at the new facility.

"What was good news (last week) for Cliffs and its steelworkers is bad news for the Nashwauk project and for what Essar was going to be," Anzelc said. "They don't have a customer now to buy their product. That doesn't bode well."

http://www.duluthnewstribune.com/business/4048063-half-back-better-times-range