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Taconite future looking bright in 2014, 2015

Minnesota’s taconite iron ore producers will make less product in 2013 than they did in 2012, but the downturn looks to be brief.

It appears 2013 will end up with about 38.9 million tons produced and shipped from the Iron Range, according to state estimates. That’s down about 2 percent from 39.7 million tons produced in 2012, said Bob Wagstrom, who tracks taconite production for the Minnesota Department of Revenue.

Most of the difference was spurred by a million-ton drop in production at Cliffs Natural Resources’ Northshore Mining, which idled two production lines for most of 2013 after losing a customer. Some of that loss was buffered by an increase at U.S. Steel’s Minntac plant in Mountain Iron, Wagstrom said, and by continued increasing production by Magnetation, which has several small plants that recover useable ore from old mine waste sites.

“With the exception of Northshore, everybody was right at last year or even a little up for this year,” Wagstrom said.

Northshore officials already have announced that they will restart their idled lines in 2014, boosting production.

And Wagstrom said that with continued incremental increases by Magnetation and Mesabi Nugget — the state’s first iron nugget plant near Hoyt Lakes — taxable production could total about 40 million tons in 2014, a level not seen since 2000.

Taconite production levels are important for local and state tax coffers. The mining companies pay taxes based on what they produce and sell. The production tax alone, what mining companies pay instead of property tax, pumped nearly $103 million into local government and school funds for 2012 production alone. That number should hit $110 million for 2013, Wagstrom said.

That taconite production tax was $2.53 per ton in 2013 and is slated to go to about $2.60 per ton for 2014 unless state lawmakers act to freeze it. The mines also pay a so-called occupation or business income tax to the state, and they pay mining royalties if ore is mined where the state owns mineral rights.

Taconite production also is a good measure of the health of the region’s single largest industry; iron ore mining amounts to one-third of all gross regional product. If production begins to drop markedly, it can signal hard times ahead, often including layoffs at plants and a ripple effect across the region.

Because most taconite produced in Minnesota goes to large U.S. blast furnaces to make domestic steel, the continued rebound of the U.S economy is critical for continued taconite industry success. Construction is up across the U.S., as are auto sales, driving demand for Minnesota taconite, said Craig Pagel, executive director of the Iron Mining Association of Minnesota, an industry trade group of mining companies and their suppliers.

“We’ve seen 2013 as a very good year with all but one of the major producers near full capacity,” Pagel said.

Domestic U.S. steel production has been slowly growing, from 74 percent of steel mill capacity to 76 percent this year, and Pagel expects that trend to continue. Because Minnesota produces 80 percent of the ore used in those mills, that means increased demand for Minnesota taconite. And that means more cargo shipped by railroad and boat, and more spinoff jobs for companies that service the mining sector.

“I see 2014 as an even better year,” Pagel said. “Not just for the mining companies, but for their suppliers and for regional employment.”

Rebound after recession

Minnesota taconite production ramped up through the 1950s, ’60s and ’70s, and ranged from a high of 54.4 million tons in 1979 — the height of U.S. domestic steel production — to 23.2 million tons in 1982, as the domestic steel industry crashed.

For the last decade, production has generally ranged between 32 million and 39 million tons, as the Iron Range’s six major plants (down from eight in the 1980s) produced at close to their capacity. The exception was in 2009, at the height of the Great Recession, when production dropped to just 17 million tons as all six major producers were shut down for part of the year because of dwindling demand for steel. It was the industry’s worst year in Minnesota.

Taconite production rebounded fast in 2010, however, and since then has remained robust at the six major plants, with upstart Magnetation continuing to grow. Magnetation shot up from about 750,000 tons produced in 2012 to nearly 1.1 million tons in 2013, and company officials say they expect that growth to continue in 2014. They expect even more production in 2015 when yet another plant opens in Coleraine.

Essar production delayed to 2015

Meanwhile, Essar Steel’s under-construction project in Nashwauk — the state’s first new taconite plant in more than 36 years — now is expected to begin producing pellets in 2015.

Essar earlier had hoped to begin producing in early 2014 but company officials this year said they had slowed construction of the $1.7 billion project in a tight financial market.

In August, the company said production was pushed back to late 2014. But now the company said it will test its production equipment late in 2014 and not begin actual production until early in 2015.

“We expect to begin pellet production during (the first quarter of) 2015 and achieve maximum capacity during (the fourth quarter of) 2015,” Kevin Kangas, a spokesman for Essar Steel Minnesota, told the News Tribune.

Pagel said he thinks there’s room for all that new 2015 production in Minnesota even with huge increases by Australian and other foreign iron ore producers. A single new mine under construction in Australia will produce as much iron ore as all Minnesota operations combined.

If Essar and Magnetation produce in 2015 as expected, and other plants remain near capacity, it would put Minnesota production potentially above 47 million tons per year, a level not seen since 1981.

“Most of the Minnesota product is integrated (with mines dedicated to same-company steel mills) so it’s not as critical what’s happening on the spot or global market,” Pagel said. “But if you do look at it globally, not only is there continued growth in China, India is growing rapidly and using more steel. So it’s not just the U.S. (iron ore) demand growing but global demand should keep growing, too.”

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