Plans to idle Northshore mine disrupt otherwise strong outlook for iron ore and steel

Iron Range mines saw a rapid rebound in 2021 on higher demand for steel that's expected to remain strong in the year ahead.

Nearly 42 million tons of taconite were shipped out of Silver Bay, Two Harbors and Duluth/Superior last year, according to the Lake Carriers' Association. That's a 28% increase over 2020 and less than a million tons behind 2019 levels.

"This was a really incredible year," said Kelsey Johnson, president of the Iron Mining Association of Minnesota. "In large part that's due to the boom in construction for new homes and people reinvesting in their current homes, buying new refrigerators and stoves and wanting to buy a new vehicle."

Taconite, the type of iron ore mined and processed in Minnesota and Michigan, is a crucial building block for steel produced around the Great Lakes that's used to make cars, appliances and infrastructure.

Cleveland-Cliffs says it is the largest supplier of steel for the U.S. auto industry and would have had an even stronger end to 2021 if not for the microchip shortage that slowed production of new vehicles, chief executive Lourenco Goncalves told investors Friday.

"As the microchip shortage improves, the automotive industry will need a lot more steel," he said. "Deliveries in January to the automotive industry were stronger than the previous three months."

Cleveland-Cliffs is the dominant mining company on the Iron Range after buying ArcelorMittal USA in 2020 and is now the largest flat-rolled steel producer in North America. The Ohio-based company pulled in a record $20.4 billion in revenue last year and a $3 billion profit.

Cliffs owns Minorca, HibTac, Northshore Mining and United Taconite in Minnesota and the Tilden Mine in Michigan.

On Friday Cliffs announced it will idle Northshore Mining this spring to avoid royalty payments and because "our iron ore needs are not as high as before," Goncalves said, since Cliffs no longer wants to sell taconite pellets or direct-reduced iron to other steel companies.

Cliffs also bought a scrap-steel company last year to help supply its electric-arc furnaces, which are seen as the future of steelmaking.

Northshore can produce more than 5 million tons of iron ore per year and employs more than 500 people at the Babbitt mine and Silver Bay processing and shipping facility. The economic impact of the idling will be widely felt on the Iron Range, Babbitt Mayor Andrea Zupancich said.

U.S. Steel — which owns the Minntac mine in Mountain Iron and the Keetac mine in Keewatin, as well as a minority stake in the HibTac mine in Hibbing — recorded an "all-time best performance" in the second half of 2021, chief executive David Burritt told investors last month. The Pittsburgh company netted a $4.1 billion profit on $20.2 billion in revenue last year.

"The steel industry is on quite a run," Burritt said. "We remain bullish in 2022, and the strong demand continues."

Burritt said he expected supply-chain woes and inflation to cool off later this year while demand for new cars and appliances remains high.

U.S. Steel and union officials are investigating the recent collapse of a conveyor belt at Minntac. There were no injuries, but a production delay is possible at the Iron Range's largest taconite operation. The company said it does not expect disruptions in its supply chain.

Alongside consumer demand for goods made with American steel, boosted infrastructure spending should also buoy the steel industry and the Iron Range, Johnson said.

"It's a good opportunity for the industry long-term," she said. "It really comes down to [competition with] imports and making sure we're doing everything we possibly can to keep demand strong for American steel."