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Aaron Brown writes about northern Minnesota.

Watching United Steelworker talks on the Iron Range

 

 

After a spring and early summer in which Iron Range mine owners tightened belts, idled workers and sought relief from taxes and environmental regulations, now we come to a new phase of the region's simmering crisis. This week in Pittsburgh, the United Steelworkers, the union that represents most Iron Range miners, opened negotiations with ArcelorMittal regarding the contract at the Minorca Mine near Virginia.

The Minorca is one of the smallest mines on the Iron Range but contract negotiations there will preview the negotiations for U.S. Steel and Cliffs Natural Resources, the two biggest mining companies on the Range which operate several mines. Steelworkers will learn for the first time exactly what the companies project given the continuing analysis that the price of iron will fall and stay low for at least two years. By some reports U.S. Steel, for instance, needs to cut an additional $8 per ton off its production cost to meet company goals for the coming year.

Meantime, in some Fourth of July weekend conversations I've learned that the laid off U.S. Steel workers at Keewatin Taconite and Minntac believe they'll be back to work by October. That is possible, but there are many moving parts within that hopeful proposition.

For instance, what will the price of iron ore actually do? Right now it has inched back up from its total collapse last spring. Construction starts, manufacturing projections and general economic numbers in the United States look pretty good right now. However, Europe and China are swirling in separate financial crises, which will play a role in the American economy eventually.

How will 40 million tons of new ore production in Australia affect the global market? Demand may increase, but so will supply. The Australians are producing ore at nearly half the cost of American mines. And they aren't the only nation where companies are upping low-cost production.

What are the local factors? Many questions remain about Essar Steel near Nashwauk. There is no denying the fact that construction at the Essar plant has been loud and brisk all summer, with about 500 workers on site any given day. But the new mine being built by a new company to Minnesota, India's Essar Steel, is causing other mines fits. This is in part because the state and IRRRB helped Essar get off the ground with infrastructure funding, and in part because added supply will impact demand for ore at other Range mines.

Considering that Essar claims it will produce the lowest-cost pellet in the U.S., one can see the reason for concern. Sources tell me that Cliffs wants to nip this in the bud, perhaps even seeking to buy into or take over the project somehow. Essar says it wants to run the mine alone, but it has a major loan repayment due soon and many are watching to see if they are able to cut the check.

Additionally, Essar and Cliffs are both exploring direct-reduced iron technology, adding value to iron ore products to suit new electric arc furnaces in contemporary steel mills. Iron Range mines produce taconite suited for blast furnaces, once an industry standard but that no one is building anymore and fewer companies are using at all. The entire future of Iron Range mining may well rest in the companies that successfully launch new kinds of pellet products or even flexible forms of pig iron before market forces shut down higher cost mines.

Further, Essar has been touting its off-take agreement with ArcelorMittal, replacing AM mines in Canada, as one of the central reasons Essar's iron ore will have a new market in 2016. But that agreement was signed when iron ore prices were high. As the terms are set to expire after so many Essar construction delays, many doubt that ArcelorMittal will renew the agreement.

Which means Essar's pellets go on the open market alongside Cliffs' pellets. Hence the corporate kerfuffle.

That's a lot to absorb with the news of a little mine opening negotiations with ArcelorMittal. But it bears mentioning that Arcelor-Mittal is the world's largest steelmaker, dwarfing all the other companies on the Range. In a small world, everything is large.

Up North Report: Inside North America's biggest construction project

The aggregate and ball mills at the new Essar Steel Minnesota construction site near Nashwauk on the Mesabi Iron Range as seen on May 21, 2015. (PHOTO: Aaron J. Brown)

Construction is accelerating at the long awaited $1.9 billion Essar Steel Minnesota mine near Nashwauk, while Essar now says it’s optimistic about producing direct reduced iron products here.

In a tour of the Northern Minnesota site on May 21 with Mitch Brunfelt, Essar’s assistant general counsel and director of government and public relations, I took pictures and observed progress at the site of the biggest construction project on the Mesabi Iron Range in a generation. This is currently the largest greenfield construction project on the continent, and it's hard to understate the sheer size, commontion, and   labor involved. The site produces a steady drone, easily heard from my home eight miles away.

After years of starts and stops, Essar now says it is finally fully financed and has increased its contractor workforce at the site. About 400 workers were on site the day I visited. Brunfelt said they will soon see 600-800 workers on site each day as summer arrives in force.

Essar has officially amended its construction timeline to reflect the realities of the company’s progress. Brunfelt said Essar engineers are now eying production of taconite by late June or July of 2016. This is a revision from earlier projections to be making pellets by the end of this year, a claim that didn’t seem plausible to most observers. Based on the amount of work I saw, however, the new completion date seems possible.

I asked about rumors of other mines looking to buy into the Nashwauk project. Brunfelt said Essar, a privately held company, is not looking for partners and plans to operate this taconite plant on its own. They have off-take agreements to send the initial annual capacity of 7 million tons of pellets to Essar’s Algoma steel mill in Sault Ste. Marie, Ontario, on the east end of Lake Superior and to Arcelor-Mittal, the world’s largest steel company with mills in North America.

One of the most interesting things I learned on this tour was that Essar claims their pellets will be the lowest-cost pellets in North America, which Brunfelt said will protect this new plant’s viability in the ongoing consolidation of the global steel market. Brunfelt would not reveal their target for cost-per-ton, but said that efficiencies adopted in a new taconite mine will make their pellets more affordable than any others on the continent. And, the big story, rumors that Essar was abandoning direct reduced iron, or “value-added,” are false, Brunfelt said.

“Our firm position is to get this [taconite plant] done first,” said Brunfelt. We’re optimistic about a value-added product. It’s going to take time.”

Brunfelt said Essar is already permitted for 1.1 million tons of direct-reduced iron, the site is already designed to add that capacity, and the company’s international parent has experience running DRI facilities. One of the initial challenges will be the fact that Essar will need to increase its taconite production capacity to produce the new DRI materials. Brunfelt said that regulators will want to observe normal operations for a couple years to obtain environmental data to determine if the company will receive the OK for additional production. If that happens, Brunfelt said the plant would produce 10-14 million tons of ore annually, some of which would feed into new DRI operations.

Regardless, Essar will be able to produce different kinds of pellets at its new plant right away — ranging from traditional blast furnace pellets common to Range mines, to a “flex” pellet, to the direct reduced grade pellets used in newer electric arc furnaces.

See more May 21 photos of Essar Steel Minnesota's ongoing construction project, along with other observations at my blog.

PHOTO: The aggregate and ball mills at the new Essar Steel Minnesota construction site near Nashwauk on the Mesabi Iron Range as seen on May 21, 2015, Aaron J. Brown.

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