America’s Heartland Feels a Chill From Collapsing Commodity Prices – by Nelson D. Schwartz and Julie Creswell (New York Times – October 23, 2015)

http://www.nytimes.com/

In China and other emerging markets, growth is waning and demand for the raw materials that drive the global economy has dried up.

A thousand miles south of Granite City, Ill., a gritty steel town on the Mississippi River, West Texas oil rigs have shuddered to a halt. Seven hundred miles north, mines in the Iron Range of Minnesota have been stilled.

The drilling rigs, with their deep underground pipes, once consumed much of the steel that Granite City’s blast furnaces could produce, while the mines supplied the raw material.

So now, more than 2,000 workers at the mammoth United States Steel plant not far from St. Louis are waiting to see if they will be next. This month, the company warned them it might be forced to idle the plant. Layoffs could begin around Christmas.

Granite City may be waiting, but a chill in economic activity is already evident across a broad swath of the nation’s heartland stretching from the Gulf of Mexico to the Canadian border, as prices of commodities sink.

Whether it is roustabouts and other oil field workers in Texas and North Dakota, miners in Minnesota, farmers in Iowa, or heavy equipment makers and sellers in Illinois, the reason for the fear is the same: a sudden plunge in demand for commodities.

“Everybody is scared to death, and we’re anticipating the worst,” said Mike McCabe, 53, a second-generation steelworker who has spent nearly two decades working in the furnace where molten iron and scrap metal are transformed into steel. “They pay us to make pipe. That’s what we do. But the rumor is that the order book is terrible.”

The fall in prices for a variety of products, including crude oil, iron ore and agricultural crops like corn and soybeans is reminiscent of the collapse of the technology boom in 2000 or the bursting of the housing bubble nearly a decade ago. And behind the pain and anxiety are headwinds blowing from China and other emerging markets, where growth is slowing and demand for the raw materials that drive the global economy has dried up.

Even as the American economy continues to plow ahead, nerves are increasingly on edge. Investors and banks that lent eagerly to energy and mining giants when prices were high are worried about whether they will be repaid if prices stay low. Caterpillar, based in Peoria, Ill., said in late September it would cut up to 10,000 jobs, a casualty of falling demand for its trademark yellow bulldozers and excavators.

A few days after Caterpillar’s decision, Alcoa announced it would split in two to help cope with the slide in aluminum prices. DuPont, which has been under pressure to perform a similar breakup because of weak chemical prices, said in early October that its chief executive was stepping down and that it would cut costs more aggressively.

In Texas, energy companies and other natural resource businesses have eliminated 25,000 jobs this year. Sparsely populated North Dakota, where fortunes soared with the shale oil fracking boom, has lost more than 10,000 jobs, with some of its hastily built new housing now empty.

For the farm belt, which largely sidestepped the damage wreaked by the financial crisis and the Great Recession, the economic turnabout has been especially sharp. The Agriculture Department forecasts that farm income, adjusted for inflation, will fall 54 percent from where it was two years ago — the third-lowest level since the 1980s. Corn, the most valuable crop in the country, has fallen to $3.78 a bushel from $7.50 three years ago.

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