After a bump from tariffs, will steel’s slowdown harm Iron Range?

The latest financial results for the three companies mining iron ore in Minnesota were less than promising.

U.S. Steel, which owns the Keetac and Minntac mines and taconite plants in Keewatin and Mountain Iron, lost $84 million in the third quarter of 2019 amid “challenging market conditions.” The company laid off non-union workers across the company earlier this month, including at least 30 at Keetac and Minntac , as part of a $200 million reduction to its annual fixed costs, and idled one production line at Minntac in October. In July, it announced three of its blast furnaces, in Indiana, Michigan and Europe, were idling amid low steel prices and low demand.

Earlier this month, ArcelorMittal, which owns the Minorca mine in Virginia and owns the largest stake of and manages Hibtac in Hibbing, said it was facing “tough market conditions" due to low steel prices. It shut down an Indiana blast furnace for maintenance until demand increases, but its shutdown was not expected to impact Minorca, which supplies pellets to a different Indiana Harbor blast furnace.

Cleveland Cliffs, owner of United Taconite in Eveleth and Northshore Mining in Babbitt and Silver Bay, r eported lower profits in its third-quarter call as well . CEO Lourenco Goncalves blamed a historic month-over-month decrease in pellet premiums, which impacted the company's exports.

Will those “challenging” and “tough” market conditions cause mass layoffs at Iron Range mines and taconite plants? Maybe not.

Tony Barrett, a retired economics professor at the College of St. Scholastica who plans on returning to teach next semester, said he doesn't think this mirrors the 2008 downturn, during a severe global recession, or the 2015 downturn, when China dumped cheap steel in the U.S.

After a few years boosted by anti-steel-dumping measures by the Obama administration and steel tariffs by the Trump administration, Barrett said the industry is falling “back into a more traditional pattern.”

“Personally, I don’t see a recession coming, and very few economists do. If we have a full-blown recession, the Range is going to feel it,” Barrett said. “If you believe, like I do, that the U.S. economy is probably going to pick up a little bit in 2019, we should be fine.”

According to the World Steel Association, global demand for steel is expected to grow by 3.9% through 2019, but in 2020 steel demand is expected to grow by only 1.7%.

“Steel demand slowed in 2019 as uncertainty, trade tensions and geopolitical issues weighed on investment and trade,” Al Remeithi, chairman of the Worldsteel Economics Committee said in a short-range outlook released last month . “Manufacturing, particularly the auto industry, has performed poorly contracting in many countries; however in construction, despite some slowing, a positive momentum has been maintained.”

Peter Kakela, professor emeritus at Michigan State University and a taconite industry analyst, believes the slowdown is caused in part by continued steel imports, despite tariffs, and by the “mature economy” in the U.S. that leads to a sluggish demand.

“I think it’s more of a slowdown because of some imported steel, and maybe a maturing of our industrial society. Maybe we’ve built enough roads right now, and buildings, and bridges. .... We’re at the repair end rather than the original construction end of things,” Kakela said.

And then there are goods like cars that are using less steel and more plastic, Kakela added. “We've still got good ore, we've still got some good processing going on. We just don't need quite as much."

Barrett maintains the anti-dumping measures and tariffs put on steel have worked, and any further drop in demand for domestic steel will be tied to the economy.

“The steel industry has definitely benefited from (tariffs),” Barrett said. “It doesn’t protect them from a downturn in the U.S. economy, but it certainly protects the U.S. from being the dumping ground for everyone else's excess steel.”

But Kelsey Johnson, president of the Iron Mining Association of Minnesota, said excess foreign steel is still a problem, even if tariffs have helped.

“What the tariffs did immediately is they bumped up the capacity utilization of many of the blast furnaces in the steel-making facilities,” Johnson said.

And as long as the steel industry’s capacity utilization remains above 80%, Johnson said, then the taconite industry and Iron Range should be safe. But, she acknowledged, that capacity utilization is now “kind of falling off.”

According to the American Iron and Steel Institute’s Nov. 16 weekly raw-steel production update , the U.S. steel capacity was still producing at 81.1%.

Johnson said the taconite industry’s immediate threat is a rate increase proposed by Minnesota Power for 7.7% that could take place as soon as Jan. 1 and could grow to a 10% increase for businesses if it’s fully approved by the Minnesota Public Utilities Commission.

Electricity bills account for about 25% of the taconite production costs, Johnson said.

“Every time we do something like that, we become a little less competitive,” Johnson said.

Minnesota Power said the increase is necessary to invest in cleaner energy, make up for expiring power sales and combat rising costs.

In the meantime, Barrett isn’t worried things will get worse at the mines and taconite plants.

“There's no evidence of any overexpansion going on up on the Range — far from it,” Barrett said. “The steel industry knows it's going to have ups and downs, and it stays pretty lean. So I don't see these recent announced layoffs by U.S. Steel as being a harbinger of a worse downturn coming.”

An earlier version of this article incorrectly said which blast furnace is supplied by Minorca. It has been corrected.