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Taconite is Back

Minnesota's iron ore industry has bounced back to full speed this spring, less than two years after hitting rock-bottom - one of the fastest turnarounds in a century of mining. Suddenly, an industry tied since the 1800s to national and global economic slumps and upturns seems to have shortened the period between bust and boom.

That's good news for Northeastern Minnesota's economy, which is tied to hard-rock mining more than most people know. The recession quickly became old news. Taconite production rocketed back to 37.5 million tons and employment returned to 3,600 workers. Global steel demand turned healthy again and demand for Minnesota ore was heavy.

Experts say one key to the breakneck bounce-back was taconite plant owners quickly reacting to dwindling demand by squeezing off production. "They shut down faster this time, with some very harsh consequences for the workers," said Drew Digby, regional analyst for the Minnesota Department of Employment and Economic Development. "But it's allowed them to bounce back faster as well."

The rebound has also meant more trains hauling taconite from the Range to Lake Superior and more freighters hauling it across the Great Lakes and beyond.

For 2011, industry experts say production will hit at least 40 million tons, a mark not seen since LTV Steel permanently shuttered in 2000. Production could go higher if plants continue to push the efficiency envelope, Pagel said. "All indications are that world steel demand should remain high."

Compounding the economic good news are new products and new markets. Mesabi Nugget is making an iron nugget that can be used in electric mini-mills, a new market for Minnesota ore. Ore concentrate pulled from what used to be waste by upstart producer Magnetation in Nashwauk is heading to Mexico. And the growing new market of China is hungry for taconite pellets. Cliffs Natural Resources has said it will ship 1 million tons of Michigan and Minnesota taconite pellets there this year.

"The price per ton on that (taconite going to China) is something close to $200, and it's never been that high before," Pagel said. For the first time in any major way, the price that foreign steel mills are willing to pay for the ore will more than cover the huge cost of shipping taconite from Minnesota overseas. Minnesota-processed taconite is now competing with raw iron ore from Brazil and Australia. Magnetation's Matt Lehtinen noted that his company's iron ore concentrate is being shipped to a Mexican mill by train, taking the place of raw ore from Brazil. It now matters more for Minnesota taconite whether India's growth rate is 8 percent or 12 percent than what sales are for the U.S. auto industry," Digby said.

Peter Kakela, Michigan State University professor and an expert on the global iron ore industry, said companies are selling taconite at four times what it cost to produce, a return on investment unheard of in the past when profits of a few dollars per ton were common.

"For years - decades, even - the price hovered in that $30 to $35-per-ton range. ... And now someone is paying $200. They've never seen anything like this before," Kakela said. "There's your incentive for all the expansions people are talking about. That's why everything is running at full capacity."

Not only have mines recalled all the 3,600 Steelworkers who were laid off in 2009, but about 100 jobs have been added. With the increasing pace of retirements by aging Steelworkers, 1,000 of today's workers are new employees never before in the taconite business. The industry continues to recruit local students onto "wrench-smart" training and engineering career tracks at local colleges and universities.

Digby said there is no doubting taconite's impact on the region, even as the service economy becomes larger. In 2009, when checks from the mines stopped, the region's entire payroll numbers crashed and sent shock waves through the regional economy. Taconite has "been especially important in Northeastern Minnesota as the wood-products jobs continue to dwindle," Digby said.

Mining amounts to about 2 percent of total regional employment and 8 percent of regional sales. Health care, by comparison, accounts for 14 percent of employment and 8 percent of sales. But a 2009 UMD study showed the direct and related economic contribution of mining amounts to 30 percent of the regional domestic product.

That UMD study found some 18,000 jobs directly or indirectly tied to the mining industry in the region - from railroad and ports to engineers and the doctors and dentists who have miners as patients. Mining also is equipment-intensive, consuming tires, trucks, explosives and fuel.

Still, direct employment in the taconite industry has dropped from more than 15,000 at its peak, to 5,600 in 2001 to about 3,700 now. Digby said that, while mining is still big and now growing, its role as an employer is shrinking as health care, education and other service industries grow at a faster pace.

"On one hand they have become far more able to adapt to the global economy and become more efficient with technology and innovation. And that's great for the industry and for stability," Digby said. "The downside of that is it has usually meant fewer people employed, and that limits (taconite's) impact on the regional economy going forward, at least as far as direct employment is concerned."

Source: Duluth News Tribune, John Myers, 3/27/11