IRON ORE by William S
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IRON ORE By William S. Kirk Domestic survey data and tables were prepared by Jim Peang, statistical assistant, and the world production table was prepared by Linder Roberts, international data coordinator. Iron ore production in the United States rose by 12%, but from the blast furnace. A major increase in production would consumption fell to its lowest level since 1991. World iron entail restarting blast furnaces and hiring new personnel. The ore production and consumption rose in 2002. Brazil was the steel business is highly cyclical, and when demand falls, as it largest producer of iron ore in terms of iron content, and China inevitably does, the steelmakers will not have to shut down was by far the largest consumer. Iron ore trade increased and recently opened blast furnaces and lay off recently hired prices fell. Pig iron and steel production rose. personnel. So, despite increases in both steel production and Iron ore is essential to the economy and national security of demand in 2002, iron ore consumption fell to its lowest level in the United States. As the basic raw material from which iron decades. and steel are made, its supply is critical to any industrial country. Scrap is used as a supplement in steelmaking but is limited as Legislation and Government Programs a major feed material because the supply of high-quality scrap is limited. However, alternatives, such as direct reduced iron The State of Michigan passed bill 516, the Michigan Minerals (DRI), were available, and their use is growing. Credit Bill, which provides a $1-per-ton tax credit to any steel Iron ore is a mineral substance which, when heated in the company that purchases pellets from the Tilden Mine (Mining presence of a reductant, will yield metallic iron. It almost Journal, 2002§1). always consists of iron oxides, the primary forms of which are The U.S. Department of Energy (DOE) signed a cooperative the minerals magnetite (Fe3O4) and hematite (Fe2O3). Taconite, agreement with Mesabi Nugget LLC. (More information can the principal iron ore mined in the United States, has a low be found under Current Research and Technology.) The Mesabi (20% to 30%) iron content and is found in hard, fine-grained, Nugget research project is a 2-year program involving the banded iron formations. About 98% of iron ore is used in the construction of a pilot plant that would produce iron nuggets iron and steel industry. Ore is put into a blast furnace and to use as feedstock by the North American steel industry. smelted to produce molten iron. The molten iron is moved to Under the terms of the agreement, DOE will provide $5 a basic oxygen furnace (BOF) where it is converted to steel million in funding to the project—$2 million in the first year; by removing most of the remaining carbon. In the past, a high followed, on a contingent basis, by $3 million in the second percentage of the molten iron was poured into molds resembling year. The agreement does not cover the $15 million cost of pigs, hence the name pig iron. Although today almost all molten constructing the plant and requires at least a 50% match of iron goes directly to the BOF, eliminating the step, which DOE’s contribution from Mesabi Nugget for plant operations produces pig iron, the product of the blast furnace is usually (Robertson, 2002a). referred to as pig iron. Ispat Inland Mining Co. received a $107,000 grant from To understand the state of the U.S. iron ore industry in 2002, DOE to fund a 3-year computer simulation study that is the following data are enlightening. Iron ore consumption in intended to help the taconite operation determine ways to 2002 was 59 million metric tons (Mt), its lowest level for at increase pellet production, while using the same level of or less least as far back as 1965. There was an average of 29 blast energy. “Improving Taconite Processing Plant Efficiency by furnaces active during the year. This average was the lowest for Computer Simulation,” as the project is called, is being done at least as far back as 1961. Accordingly, pig iron production at in conjunction with the Natural Resources Research Institute’s 40 Mt was the lowest since 1982. Crude steel production, on the Coleraine Laboratory and the University of Minnesota (Skillings other hand, at 92 Mt increased by 2%. Similarly, steel demand Mining Review, 2002e; Ramsay, 2002§). rose by 3% to 114 Mt. This apparent discrepancy between ore production and steel demand is explained by examining Structure of the Industry the minimill sector and net imports of iron ore substitutes. In 2002, for the first time, the minimill sector of the steel industry Restructuring of Operations in Michigan and Minnesota.— produced more than 50% of the crude steel in the United States. In January, Cleveland-Cliffs Inc. acquired Algoma Steel Co.’s Minimills do not use iron ore for their feedstock; instead they 45% interest in the Tilden Mine in Michigan, boosting its use iron and steel scrap and some DRI. Net imports of iron ore ownership in Tilden to 85% (Pinkham, 2002). substitutes at 7.8 Mt were 13% higher than those of 2001. Iron Bethlehem Steel Corp., the bankrupt majority owner of Hibbing ore substitutes include DRI, iron and steel scrap, pig iron, and Taconite Co., indicated that it wanted to sell the Minnesota semifinished steel. Semifinished steel is produced in the form taconite operation. In July, Cliffs bought 8% of Bethlehem’s of blooms, billets, and slabs. Imported iron ore substitutes in the form of pig iron or semifinished steel allows steelmakers 1References that include a section mark (§) are found in the Internet to increase shipments without having to increase production References Cited section. IRON ORE—2002 41.1 equity in Hibtac, increasing its ownership in Hibtac from 15% to As steelmakers sold their iron ore properties, Cliffs bought 23% (Bloomquist, 2002a§; Duluth News Tribune, 2002a§). them, leading to a restructuring of the North American iron ore Cliffs announced that it had entered into an agreement with industry. With its major customers in the North American steel Ispat Inland Steel Company (a subsidiary of Ispat International industry also going through a significant restructuring, Cliffs’ N.V.) effective December 31, 2002, that restructured the strategy is to gain a larger share of the integrated steel market ownership of the Empire Mine in Michigan. The second for iron ore pellets by increasing mine ownership and entering Michigan mine had been operating under an interim agreement into long-term pellet sales contracts. Cliffs has become less of a between Cliffs and Ispat Inland since LTV Corporation ceased mine manager and more of a merchant. operations and rejected its 25% ownership in Empire early In 2002, Cliffs became the sole provider of iron ore to three in 2002. At that time, Cliffs owned 35% of Empire and Ispat large steel mills. In January, Cliffs reached an agreement with Inland owned 40%. Under the agreement, Cliffs has acquired Algoma Steel Inc. to be the sole supplier of iron ore for a 15- the entire 25% interest previously owned by LTV plus a 19% year period. In April, Cliffs entered into a long-term agreement interest in the mine from Ispat Inland. As a result, the mine is to be the sole supplier to International Steel Group Inc. (ISG), now owned 79% by Cliffs and 21% by Ispat Inland (Cleveland- for a 15-year period beginning in 2002. Cliffs also announced Cliffs Inc., 2003§). In August, Cliffs increased its ownership that it had invested $13 million in ISG common stock, of the Wabush Mine in northeastern Canada by about 4% representing 7% of ISG’s equity. Sales to ISG in 2002 were (Cleveland-Cliffs Inc., 2003, p. 2). expected to be between 1.5 and 2 Mt. Sales over the remainder The 6.9 Mt increase in Cliffs’ share of 2002 production of the contract will depend on ISG’s pellet requirements. ISG compared with that of 2001 reflected the company’s increased plans to produce more than 4.5 million metric tons per year (Mt/ ownership in the four mines and increased production at all yr) of steel. At that production level, annual pellet requirements mines except Empire (Cleveland-Cliffs Inc., 2003, p. 16). were expected to be about 5 Mt. Pellet sales during the 15-year Cliffs started 2002 with 12.2 Mt of production capacity and contract term could total more than 70 Mt, generating more than ended the year with 19.5 Mt. This raised Cliffs’ share of North $2 billion in revenue. Pellets sold under the contract would American production capacity from 15% to 25% (Cleveland- come from Cliffs managed mines in Michigan and Minnesota. Cliffs Inc., 2003, p. 2). In August, Cliffs restructured a supply deal with Rouge U.S. Steel Corp. signed a letter of intent to sell its Minntac Industries in which it agreed to lend $10 million to Rouge in taconite mine and three additional operations. In the $500 million exchange for becoming its sole supplier of iron ore pellets. As deal, New York-based Apollo Management L.P. would acquire a result, Rouge, which bought less than 1 Mt of pellets in 2001, the Minntac Mine, which employs about 1,550 people. Minntac would buy 1.3 Mt in 2002 and was expected to buy 3 Mt/yr employment and production levels were expected to remain beginning in 2003 (Metal Bulletin, 2002e; Pinkham, 2002; the same. Existing collective bargaining agreements would Skillings Mining Review, 2002a§). remain in place, along with certain unspecified employee benefit obligations.