Magnetation to idle Keewatin iron ore plant indefinitely

Free-falling iron ore prices hit northern Minnesota this week with Magnetation LLC deciding to idle its Keewatin processing plant.

The global price of concentrated iron ore was $95 a ton as recently as last June but hit $63.10 on Monday. Lower demand from China and bigger output from Brazil and Australia have contributed to an oversupply that is hurting producers everywhere.

Workers, legislators and union heads worry that further price declines could cause other Iron Range producers to slash production or close shop.

"It is possible that [price-induced layoffs] could spread. It all depends on how low the prices go," said state Rep. Tom Anzelc, a leader of the Iron Range delegation in the Legislature. "Of course, each producer has their own unique cost of production, so its hard to predict" how low a price the taconite firms can digest.

Grand Rapids-based Magnetation decided that Monday's bottoming-out required a tough call.

Its Plant 1 iron ore facility in Keewatin was scheduled to produce 350,000 tons of ore concentrate this year. Instead, it will close next month and be put on a care and maintenance program.

The plant, Magnetation's smallest, oldest and costliest to operate, has 49 workers. They received the bad news early Monday.

Retained workers may relocate to other Magnetation facilities such as its two new and highly efficient plants in Coleraine, Minn., and Reynolds, Ind., or its plant in Bovey, Minn.

Regardless, the global plunge has led to worry across the Iron Range, where seven companies produce taconite or iron ore concentrate and an eighth is set to go online next year.

The industry is already under siege and wrestling with "dumped" underpriced steel imports that sparked congressional hearings, nationwide protests and finally U.S. trade sanctions against eight nations. Taconite firms here are also battling stricter environmental rules and ore prices that appear to have no bottom.

"We do have concerns," said Itasca County District 2 Commissioner Terry Snyder. "We are keeping our fingers crossed. I know all these [Iron Range taconite] plants have become more efficient, and hopefully that helps them sustain these downward trends."

Dan Kingsley, business representative for the International Union of Operating Engineers Local 49, said that rumors have been swirling for two months that the global pricing plunge could affect his members' jobs. Local 49 represents 13,000 workers across Minnesota and the Dakotas. It represents 138 hourly workers at Magnetation's Keewatin and Bovey plants.

News of layoffs and the shutting of an entire plant caught some people by surprise, he said.

"Everybody could see for quite some time that the iron ore prices globally were going down. But did anyone predict that they would go this low? No. Nobody did," Kingsley said. "It was just last summer that Lake Superior had record [taconite] tonnage being shipped out of the ports" because of railroad backlogs.

With ore prices plummeting this winter, rumors spread that plants might be idling some lines, but nothing materialized until this week, Kingsley said.

"We didn't see anybody really cutting back their daily output," he said. Mesabi Nugget in Aurora, Minn., was temporarily shut down, but that was so the plant could install new equipment. "Those jobs will be back."

Concerns are rising around Essar Steel Minnesota, which is set to finish construction and next year start producing 7 million tons of taconite. Promised with the project are 800 construction jobs and 350 factory positions.

If those contracts remain unchanged, it accounts for one more source of taconite in an increasingly crowded global marketplace, especially after Australia's big expansion last year.

Just last year, Magnetation expanded its iron ore processing might with new operations in Coleraine and Indiana.

Lehtinen, the Magnetation CEO, said that idling the inefficient Plant 1 will improve cost competitiveness without impacting customers.

Magnetation's iron ore concentrate, which is made from old and discarded waste tailings on the Iron Range, gets transported to Indiana or Mexico to be converted into high-grade iron pellets. For the pellets, Magnetation "has a secure customer for a very long time. We are sold out for the next 20 or 30 years," Lehtinen said.

A.K. Steel buys all of Magnetation's iron ore pellets, he said. Given market prices, however, the company has no choice but to reduce its costs.