Taconite industry strikes while iron (ore price) is hot

DULUTH -- The price of iron ore has bounced around on the global market in recent months, topping out at a record-high near $200 per ton earlier this year before falling to about $135 in November. But the roller-coaster ride doesn't seem to be hu...

Cliffs Natural Resources
t02.04.09 Amanda Hansmeyer - hansMINE0208c5 - Crude taconite is transported by a hauler truck at Cliffs Natural Resources in Hibbing, Minn. Wednesday. [Amanda Hansmeyer/]
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DULUTH -- The price of iron ore has bounced around on the global market in recent months, topping out at a record-high near $200 per ton earlier this year before falling to about $135 in November. But the roller-coaster ride doesn't seem to be hurting Minnesota's taconite industry.

Minnesota's six operating taconite plants are on pace to produce 11 percent more of the concentrated iron ore than in 2010 -- about 38.9 million tons compared with last year's 35.05 million tons, said Bob Wagstrom, Minnesota Department of Revenue taconite expert.

Though little Minnesota ore moves overseas, high global prices for iron ore and the ongoing building boom in China and India have helped produce a banner year at home.

And while Asian growth slowed some this year as China boosted interest rates to cool its economy, the slowdown hasn't hit Minnesota's Iron Range.

"It's been steady production all year, from what we can see. Very few variations," Wagstrom said.


Wagstrom predicts another taconite production increase in 2012 to about 40 million tons -- the highest level since 2000, when the state had seven operating plants.

That would be another nearly 3 percent increase over this year, as U.S. producers move to ramp up production to keep pace with increased world demand. Nearly every iron-ore-producing nation, and the United States is eighth on that list, is pushing out more ore to be made into steel for buildings, bridges and bulldozers.

"They always seem to be able to squeeze a little more out, but some of them (Minnesota plants) are nearing capacity," Wagstrom said. "I assume they are selling the stuff. And it's meant pretty stable employment up here."

Craig Pagel, executive director of the iron Ore Association of Minnesota, agreed.

"Production and employment remain high, and I don't see anything changing that on the horizon," Pagel said. "One of our biggest issues right now is trying to find enough (employees) with the right skill sets to fill the jobs."

There are about 3,900 people directly working in the Minnesota iron ore industry, up from 3,600 two years ago, Pagel said.

New processes

Part of that Minnesota production increase will be more taconite coming from the six traditional taconite plants as they squeeze out more productivity to take advantage of high prices. But the 2012 increase will also include more concentrate from upstart Magnetation -- which produces a nontraditional concentrate made from waste rock at old mines -- and from Mesabi Nugget, which turns concentrate into iron nuggets. Next year also will be the first year Mesabi Nugget pays state production tax after a two-year exemption during its startup, Wagstrom noted.


Meanwhile, plans are in the works for two entirely new plants on the Iron Range -- the Essar Steel plant under construction near Nashwauk and another Magnetation plant, also in Itasca County.

"The global price, which is really driven by China, does have some effect on those of us that sell on the spot market. But it's not much of an issue for Minnesota," said Matt Lehtinen, vice president of Magnetation.

Most of Minnesota's production goes to dedicated U.S. steel mills owned by the same companies that own the taconite mine, and price fluctuations have little impact on those companies -- including U.S. Steel's Minntac and Keetac operations and steel giant ArcelorMittal's Minorca mine near Virginia and Hibbing Taconite.

Magnetation and Cliffs Natural Resources, however, which operates North Shore Mining, United Taconite (and a share of Hibbing Taconite) do sell ore to mill operators on the open market.

"But even then, much as we've done with our customer in Mexico, there are long-term contracts locked in that don't bounce around like the spot market does," Lehtinen said.

Double '08 prices

While the price is down from earlier this year, iron ore still is priced more than double 2008 levels and 10 times what it sold for a decade ago. The historically high global prices for spot iron ore helped push Cliffs to record profits in 2011. Cliffs' third-quarter operating income hit $820 million, a 110 percent increase from the same quarter a year ago .

The larger picture seems to show the Asian market slowly cooling, but overall demand for iron ore remaining high, with the global price stabilizing.


In late November, JPMorgan Chase's industry analysts said they expected iron ore prices to fall 10 to 15 percent over the next five years as demand for steel slowly declines. But considering how high prices have been for the past year, that still puts iron ore prices well above historic averages.

"We believe that high-cost Chinese production will keep its place in the market and support prices at above normal levels for some time," JPMorgan Chase forecast in a research report. "However, we have lowered our demand projections in line with our global economists' estimates of world growth, and this results in lower price forecasts."

The analysts predict an average price of $167 per ton this year, $147.50 per ton for 2012 and $150 for 2013. Lehtinen said the cost to produce traditional taconite is $60 to $80 per ton in Minnesota, with transportation to China about the same cost.

"So, the price is still in that neighborhood of being profitable" to sell overseas, he said. "But there's also continued high domestic demand, so that market isn't that critical."

Lehtinen said his company's business plan never counted on iron ore staying at $180 per ton, but that $120 per ton would mean most Minnesota operations would remain quite profitable.

World market developments "make us confident that the iron ore prices are here to stay relatively high for a few years," JPMorgan said .

Related Topics: IRON RANGE
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