Iron Range mines face looming recession triggered by COVID-19
If a recession hits, demand for steel is likely to fall.
Amid the spread of the new coronavirus and the likelihood of a global recession, mining companies on the Iron Range continue to staff the taconite mines and iron ore pellet plants at near-full levels.
This week, Goldman Sachs and Morgan Stanley said there’s already a global recession underway as COVID-19, the respiratory illness that develops from the new coronavirus, continues to spread, according to Bloomberg News .
That’s bad news for the Iron Range mines, said Tony Barrett, an economics professor at the College of St. Scholastica.
“Whenever there’s a recession, that hurts the demand for steel,” Barrett said. “And that’ll hurt the demand for our taconite.”
And on Wednesday, General Motors, Ford, and Fiat Chrysler announced plants will temporarily shut down through the end of the month to help curb the spread of COVID-19, after reaching an agreement with the United Auto Workers union, according to CNBC .
Phil Gibbs, equity research analyst at KeyBanc Capital Markets, said the integrated steel companies with ore operations in Minnesota will undoubtedly also see less demand for steel, noting that after Cleveland-Clliffs and AK Steel merged last week , the company will see about half of its steel bought up by the automotive industry.
“I would anticipate the strongest impacts to be in probably the second or the third quarters. … Maybe they receive some of the steel that they promised these guys for the remainder of the quarter, but they've certainly softened up purchases in the second quarter,” Gibbs said in an interview with the News Tribune Wednesday.
But Kelsey Johnson, president of the Iron Mining Association of Minnesota, was more optimistic. She told the News Tribune on Wednesday that the companies could be insulated because they are less reliant on the automotive industry than in the past.
“I anticipate that might not affect us as greatly as it has in the past because we’re definitely pursuing other markets for the steel that we have,” Johnson said. “That may cause a small loss but I don’t anticipate it affecting the overall economic viability of either the iron or steel market.”
Additionally, an indicator Johnson tracks — capacity utilization of the country’s blast furnaces — hasn’t fallen below 80%. If utilization falls below that figure, then the Iron Range could start to feel it.
For the week ending March 14, utilization was at 80.5%, according to the American Iron and Steel Institute’s most recent numbers released Tuesday . That’s down from a utilization of 81.6% reported the week before and 82.2% during the same week in 2019. Total production during the week was down 1.3% compared to the week before and down 1.8% from the same week in 2019.
The three companies mining taconite and producing iron ore pellets in Minnesota have not felt or responded to a potential recession, based on responses to the News Tribune this week. The companies have also kept employees working, despite workers throughout the U.S. being encouraged to stay at home during the pandemic.
U.S. Steel, which owns Keetac in Keewatin and Minntac in Mountain Iron and a portion of Hibbing Taconite, is not facing any issues with essential materials and has plans in case delivery issues arise, U.S. Steel spokesperson Meghan Cox said.
Although Cox did not explicitly address the potential impact of a recession, she made the case for why domestically produced steel is better amid a pandemic.
“The coronavirus does, however, highlight general supply chain vulnerabilities, which is a primary reason why we believe a strong domestic steel industry is needed,” Cox said in an email to the News Tribune. “Products that are made and used domestically are more sustainable since they avoid national security risks, supply disruptions and the environmental cost of transoceanic shipment.”
In the midst of the COVID-19 pandemic, Cox said U.S. Steel has canceled non-essential travel, limited visitors and encouraged employees to avoid large gatherings and use phone or video conference meetings instead.
An ArcelorMittal spokesperson said the company was taking similar measures, but did not respond to questions on whether the company sees any sign of a recession or slowdown in demand for steel and if it was taking any steps to address those possibilities. ArcelorMittal owns Virginia’s Minorca Mine and operates and owns the largest share in Hibbing Taconite.
Cliffs, owner of Northshore Mining in Babbitt and Silver Bay and at United Taconite in Eveleth and Forbes and a portion of Hibbing Taconite, is also taking extra measures to curb the spread of the new coronavirus, and believes its mines and plants can remain open as its employees are generally far apart and not working in large groups, Cliffs spokesperson Patricia Persico said.
The company has encouraged some workers, like managers and its headquarters staff in Cleveland, to work from home, Persico said.
On the potential for an economic recession, Persico on Tuesday that the company hasn’t felt an impact on demand.
“We’re still operating as usual,” Persico said.
“Right now we are not seeing any changes, but things are very fluid obviously in this situation,” Persico said. “We’ll manage it appropriately and make the right decisions to keep everybody healthy and the business as well.”
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