Iron Range slump appears set to last for a long time – by Lee Schafer (Minneapolis Star Tribune – April 23, 2015)

http://www.startribune.com/

A U.S. Steel spokesman last week emphasized the “temporary” nature of the idling coming at the company’s Keetac and Minntac operations in northeastern Minnesota.

But in looking around at the global industry, it’s shaping up as another of those slumps that sure won’t feel temporary when it’s done. It’s a global industry, and the news is bad all over.

Down in the Indian state of Goa, for example, an export industry that three years ago employed more than 100,000 may never come back. The government put it on hold for environmental reasons, and when it permitted mining to start up again this year there was no more market. Barge captains there can’t even sell their rusting hulks for scrap.

Over in western Australia, a leading market analyst last month asked for one of the iron mining companies to do the decent thing and go out of business. His other hope was that producers finally get serious about forming some sort of cartel to get a production cap, boosting prices. Financial analysts don’t usually openly call for price-fixing and collusion.

The pain isn’t just confined to ore, of course, because it’s just an input for making steel. In a recent steel industry report put out by the big Canadian bank BMO, none of the trend lines were heading up.

Scrap prices are still falling, as are prices for finished steel. American steel plant utilization is running right at 70 percent, the minimum level to be considered a healthy market. Global capacity utilization is well below what’s thought of as healthy. And unsold steel inventory continues to build.

Why the industry is reeling in 2015 starts in China, which consumes nearly half the annual world supply of more than 1.5 billion metric tons of steel. A speculative real estate boom there has busted, so steel consumption is projected to decline in 2015. That’s shattered long-held industry assumptions of growth. It’s going to keep sliding at least through 2017, according to the global investment bank Credit Suisse.

Weaker demand from China, however, is only half the story. On the supply side, big global miners invested billions of dollars in new mines and facilities. BMO estimated that between 2012 and 2018, the five largest global players will collectively add 440 million metric tons of annual iron ore production capability.

To put that in perspective, one of those Iron Range operations that looks plenty big, Keetac in Keewatin, has an annual capacity of about 6 million tons of taconite pellets.

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