Word that 15,000 British mill workers are about to lose their jobs dominated steel industry news last week, as the mills’ owner wants out at any price. Of course by now a “15,000 Layoffs?” newspaper headline should be no surprise to the iron miners of northeastern Minnesota.
The iron and steel industry is in an epic slump, and it’s slumping everywhere. Minnesotans can’t remember a downturn without a broader economic recession here, and the blame for this one usually gets placed on cheap foreign steel.
Actually, cheap steel from abroad is a symptom. What caused this one was way too much cheap capital. It got poured into far too many commodity processing projects all over the world.
That’s why iron mining executives looking for a quick turnaround are bound to be disappointed. Huge iron mining projects that were financed back when the industry forecast was for many more years of blue sky and sun have yet to even ramp up production.
It probably sounds odd that too much capital was the problem, when most business people only complain of never quite having enough. But a glut of capital leads inevitably to a glut of production and the eventual collapse of prices.
Minnesota mining entrepreneur Larry Lehtinen, who has worked in the industry since he was in college in the 1970s, hasn’t seen anything like this downturn before. As for the cause, he said, it starts with the expansionary monetary policies of central banks that followed the Great Recession.
The U.S. Federal Reserve tried to get the economy moving by buying debt securities to flood the banking system with money, driving short-term interest rates to near zero. The Fed ended its quantitative easing program last year, but other central banks have kept at it.
Investors, awash in capital, kept looking around for better opportunities to generate a return when the alternatives like government bonds paid interest of next to nothing.
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