Magnetation LLC will indefinitely close its Plant 1 in Keewatin next month due to the growing global glut of iron ore and falling ore prices that are now hitting home on the Iron Range.
The company announced Monday that the plant will be placed into a “maintenance program’’ by late March, the most obvious Minnesota victim so far in what has become a free-falling global iron ore industry.
Some 49 people will lose their jobs at Plant 1, although some may be given positions at other Magnetation operations. It’s not clear if or when Plant 1 might reopen.
Global iron ore prices have dropped by more than 50 percent over the past 18 months with slower demand in China and huge increases in iron ore output in Australia.
Since early 2011, iron ore prices have dropped by two-thirds, from nearly $190 per ton to about $62 per ton today. That’s less than the price of production for some Minnesota operations.
Magnetation President Matt Lehtinen said the rapid increase in iron ore oversupply and the free-falling price of the ore has created a situation that is “volatile and dramatic and completely unexpected.”
“Seven months ago we had industry analysts predicting $90 to $100-per-ton iron ore prices for the foreseeable future. Now, we’re at $62. No one saw this coming,’’ Lehtinen told the News Tribune. “Everyone in this business that sells on the open market is tied to the global price; Minnesota Isn't insulated from that. Plus we also have steel prices falling rapidly at the same time. … It’s a challenging time for everyone in this business right now.”
Grand Rapids-based Magnetation - which sells its Minnesota iron ore concentrate to both U.S. and Mexican steelmakers - so far hasn’t lost any contracts due to the industry shakeup, Lehtinen said. But Plant 1 was Magnetation’s oldest and least-efficient facility, and the company decided to idle the operations to save money and focus on its newer, less costly operations.
“Right now we’re very focused on cutting cost of production. We have to be,’’ Lehtinen said.
Plant 1 has 41 hourly and eight salaried employees that will be laid off.
“We will be working closely with the appropriate governmental agencies to assist the employees who will be laid off as a result of this unfortunate event,” said Larry Lehtinen, Magnetation CEO.
The layoffs are the most visible sign so far that the global iron ore situation will affect Minnesota’s mining industry, although warning signs have been showing up for several months.
Some Iron Range lawmakers who follow the industry closely have been warning for months that the next two years at least will be tough for the industry as supply and demand work to even out.
“I’ve been seeing this coming for a while now and I still believe ’15 and ’16 are not going to be good for iron ore,” said state Rep. Tom Anzelc, DFL-Balsam Township, who represents the western Iron Range where Magnetation has most of its operations. “This is just more proof that mining is such a risky, risky venture.”
Much of the taconite iron ore and iron ore concentrate produced in Minnesota is used in American steel mills owned by the company that mines it, such as U.S. Steel’s Minntac and Keetac operations and ArcelorMittal's Minorca Mine in Virginia. But other Minnesota mining companies, such as Magnetation and Cliffs Natural Resources, must sell their product on the open market, mostly to U.S. mills.
So far, because of the cost of shipping, foreign iron ore producers haven’t made inroads into supplying the U.S. steelmaking industry. But the current oversupply situation has hit some U.S companies, especially Cliffs, which has shuttered all of its Canadian iron ore operations which were closely tied to the dropping global price of ore.
Also, cheaper foreign ore makes for cheaper foreign steel, which has taken an increasingly large share of the the American steel market, thus lowering demand for American steel made out of Minnesota iron ore.
Anzelc said the situation will be further complicated by the approaching start of production at Essar Steel’s large taconite mine and processing facility in Nashwauk, which is planned to add 7 million tons of capacity for the U.S. market that's currently not needed.
Idling the Keewatin plant will help Magnetation cut costs and should help keep its remaining operations more viable, the company said Monday. The company said iron ore previously produced by Plant 1 will be replaced by increased production at the company’s other operations and “outside purchases” if needed to keep its customers supplied.
Magnetation also owns and operates Plant 2 in Bovey and Plant 4 in Coleraine that opened late in 2014. Magnetation owns and operates an iron ore pellet plant located in Reynolds, Ind., in a partnership with AK Steel.
Magnetation also built and operates Plant 3 in Chisholm which is co-owned by the parent company of Mesabi Nugget, Minnesota’s only iron nugget plant. But both Mesabi Nugget and the Chisholm processing plant currently are shut down for at least several weeks - also because of an oversupply of raw material.
Magnetation was founded in 2006 and built Plant 1 in 2008. The company uses an innovative and proprietary technology to recover valuable iron ore out of old mine waste piles left behind from iron ore mining efforts a half-century or more ago. The company has been praised as a Minnesota mining success story, growing steadily until now.
Industry analysts note that the global oversupply of iron ore - the amount produced compared to demand to make steel - sat at just 14 million tons in 2013 but rose to 72 million tons last year. This year the oversupply is expected to hit 175 million tons, with another huge jump to 300 million tons by 2017.
Minnesota produces less than 40 million tons annually, with some production also in Michigan, the only U.S. iron-ore producing states. By contrast, one new Australian mine will produce more iron ore than all U.S. producers combined.
Analysts have reported that some foreign producers have production costs as low as $50 per ton. By comparison, Cliffs announced earlier this month it hoped to reduced its cost to about $59 per ton for U.S. ore.