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Iron Range revives to meet demand in China

Sunday, February 22, 2004

MOUNTAIN IRON, Minn. -- Trainloads of iron pellets rumble out of this town, usually on their way to a U.S. steelmaker. But China's exploding steel demand has created a new market for American ore and brought jobs back, at least temporarily, to Minnesota's struggling Iron Range, the center of U.S. iron ore mining.

U.S. Steel's Minntac plant is firing up an idled ore production line to meet a 650,000 metric ton order from Shandong Taishan Iron and Steel Co. And in nearby Eveleth, Laiwu Steel bought a 30 percent stake in what had been a shuttered ore plant, under a partnership with Cleveland-Cliffs Inc. The move put 385 people back to work in Eveleth, which had suffered from layoffs at the mine and other companies.

"Six months ago, if you'd have said we'd be shipping pellets to China, I'd have said you're crazy," Minntac general manager Jim McConnell said.

That's because transportation -- which can be three-quarters of ore's final cost -- historically made it too expensive to export overseas from Minnesota and Michigan, where all U.S. iron ore is produced. While ore ships can move around on the Great Lakes, the large ships that could take it overseas profitably are too big to clear the Wellington Locks in Ontario, McConnell said.

Peter Kakela, a Michigan State University professor and expert on the U.S. ore industry, said he was skeptical that China would ever buy U.S. ore. Then he ran the numbers: China's economy jumped 9.1 percent in 2003. World ore prices jumped 18 percent last year, and 9 percent the year before. And China has more than doubled ore imports in the last three years, to 140 million metric tons.

"That's huge. All of Minnesota is producing maybe 40 million tons," Kakela said.

Other markets

It may not last. Australia and South America are China's natural ore suppliers because of shorter shipping distances. McConnell said ore producers in those two places have announced production increases, which he expects to catch up with Chinese demand. McConnell predicts Shandong Taishan's demand for Minntac ore -- he calls it a "bubble" -- might last six to 18 months.

"The cost of transportation dictates that China will not be a long-term market for us," he said. Eventually, he expects Minntac to return to producing ore mostly for U.S. Steel and a handful of smaller domestic customers.

In Eveleth, laid-off workers got their jobs back in December after Laiwu Steel and Cleveland-Cliffs bought and restarted a bankrupt ore operation.

For Cleveland-Cliffs, the purchase of the Eveleth mine was fortuitous; the company recently said higher ore prices should improve its operating earnings by about $40 million for 2004.

Transportation hasn't been the only reason for the decline in the U.S. ore business.

While other countries can still mine rocks that are as much as 65 percent ore, the U.S. exhausted its high-grade ore in the 1950s. Now, mines on Minnesota's Iron Range and in Michigan work in rock that might contain 30 percent ore. That means it needs more refinement before it can be sold.

At Minntac, extension cords as thick as a fist and hundreds of feet long snake through the 40,000 acre open-pit mine, powering giant electric shovels that scrape up ore-laden rock. Those shovels empty into towering 240-ton dump trucks with cab ladders that rise along the front like apartment fire escapes.

The rock is crushed and ground into a powder, then baked into marble-sized pellets. Taconite miners claim their pellets melt better than natural ore in steelmakers' blast furnaces.

Minntac, the biggest of six taconite producers on the Iron Range, fills a 140-car train five times a day with the pellets.

"Minnesota ore is such high quality that they can afford this shipping that's going on," Kakela said. He also believes the Chinese wanted to add another supplier to increase price competition.

Joe Strlekar, president of the United Steelworkers Union Local 6860 in Eveleth said some people have worried that feeding the Chinese steel industry now could hurt workers in other U.S. industries later by creating more competition. But Strlekar said it's not clear that will ever happen, and, anyway, mineworkers need the work.

Eveleth Mayor Calvin Cossalter sees it as a natural part of business.

"They sell things to us. Why can't we in return sell a high-end product to them?" he said.


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