Furnaces at two taconite mines idled by downturn in steel market

Cliffs Natural Resources has announced what it calls production curtailments at two of its taconite companies: North Shore Mining, based in Silver Bay, and United Taconite in Eveleth. The companies mine iron bearing taconite rock, and it manufactures taconite pellets that are used to make steel.

Cliff's Minnesota spokesperson Maureen Talarico says the steel markets have been soft.

"We've seen some of our, the steelmakers, taking down furnaces; kind of banking their furnaces, and so this is in response to a lesser demand," said Talarico.

Cliffs is turning off half of the pellet furnaces in each taconite plant, what it calls two small furnaces in Silver Bay and one in Forbes.

A Cliff's statement says workforce adjustments will begin immediately, but Talarico wouldn't say either how many jobs might be affected or for how long.

"Right now, we're just going to say indefinitely. Obviously, everybody's hoping that the market rebounds, and that the demand will increase," said Talarico.

Cliff's Northshore employs about a thousand combined at the two facilities. The idled furnaces represent half the available furnaces at each facility and a third of the capacity.

Layoffs could be substantial. They would be the first after several years of relative prosperity, which was fueled in part by strong steel demand from China.

The cuts are not a surprise, according to Tony Barrett, Economics Professor at the College of St. Scholastica, who follows the region's taconite industry.

"Not really. With the economic downturn demand for steel goes down. We've seen this for generations. You know, this is just what happens. The question now becomes how far down are we going to go on this swing. The jury is out on that," said Barrett.

And it remains to be seen if other announcements might be coming from other producers. Cliffs owns a share of and manages Hibbing Taconite, as well as two iron mines in Michigan's Upper Peninsula. Arcelor Mittal operates the Minorca Mine near Virginia, and US Steel owns plants in Mountain Iron and Keewatin.

Barrett says he'd be surprised if other producers don't trim production.

Experts say the down turn in taconite is inevitable. Bret Schwiesow, an equity analyst with Thrivent Financial, says worldwide demand for steel was down in September more than 3 percent from the year before.

"As I look back at my database, that is the first negative year over year production figure for steel since January of 2002," said Schwiesow.

And it shows in prices. Schwiesow says the price for a roll of hot rolled flat steel, the type used to make cars or appliances, peaked around $1,100 a ton in March, and it is now closer to $800 a ton, it is expected to fall significantly.

One saving grace may be that taconite producers have greatly increased efficiency since the last really big downturn in 1981 and 1982. That slump closed taconite mines altogether include the Butler mine in Nashwauk and Reserve Mining in Silver Bay. This time around, companies are better prepared, according to Craig Pagel, President of the Iron Mining Association of Minnesota.

"I think we'll find that the iron mining industry in Minnesota has developed their business plans over the last couple of years, so that they weather not only the good times, but the times where things get a little bit harder," said Pagel. "They weather them a little bit better, and I think we'll see how those business plans work out over the next couple of weeks."

This could be the week for additional announcements as well. Quarterly earnings reports are coming out. US Steel today announced that profits had tripled, but warned about declines in the fourth quarter. Cliffs Natural Resources will talk about earnings and expectations Thursday. Cliff's stock price rose more than 10 percent after today's announcement.

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