EVELETH - Cliffs Natural Resources on Wednesday said it will idle its United Taconite operation on the Iron Range, forcing 420 layoffs as the storm pummeling the U.S. domestic steel and iron ore industries continues to rage.
The company said it has a glut of taconite iron ore pellets on hand while demand from its customers, U.S. steel mills, remains depressed.
The United operations - with a mine in Eveleth and processing center in nearby Forbes - employs about 500
people with a $60 million payroll in 2014 when it produced 4.9 million tons of taconite pellets.
The company said “the idling of production at UTAC will be initiated as soon as feasible and completed by the end of August.” Some 375 hourly steelworkers and 45 salaried managers will be laid off, Lourenco Goncalves, Cliffs CEO, said. About 80 employees will be kept on to maintain the facilities.
It remains unclear how long the operations will be shut down. But Goncalves said the shutdown will be done so that the company can “promptly bring production back as soon as the level of demand from our clients justifies’’ it.
That won’t happen, Goncalves said, until the current “absurdly high rate’’ of imported steel returns to more normal levels.
Goncalves faced tough questions from industry analysts who highlighted his firm’s oppressive debt. Cliffs has cut costs, closed unprofitable Canadian iron mining ventures, sold coal mines and paid off about $1 billion in debt in the year he’s been on the job, Goncalves said, but another $2.6 billion in debt remains. Cliffs’ ability to make money and repay that debt, even as the industry endures low prices and decreased demand, will likely decide if Goncalves can keep the company solvent.
“We are at the bottom of the cycle,’’ Goncalves said.
Cliffs on Wednesday cut its 2015 forecast for its U.S. iron ore sales by 1.5 million tons to 19 million tons, again blaming the supply glut of taconite created by heavy steel imports.
The Cleveland-based company’s overall second-quarter revenue fell 33.4 percent to $498.1 million from last year. But the company said net profit attributable to shareholders was $60.2 million, or 39 cents per share, compared with a loss of
$1.9 million, or 2 cents per share last year.
The United layoffs, the first at a Cliffs’ operating facility in Minnesota during the current industry downturn, punctuate the ongoing woes of the Iron Range. They come after U.S. Steel laid off hundreds of workers at both their Minntac and Keetac operations, after Magnetation closed plants and filed for bankruptcy, and while Mesabi Nugget has shut down indefinitely.
U.S. Steel, however, confirmed Wednesday that it will bring Minntac back online next month.
Goncalves said Cliffs avoided layoffs earlier in the year because it projected that orders for domestic steel would ramp up sooner than they have.
“That didn’t happen as soon as we expected it to, so we are forced to do it now,’’ he said.
Still, Goncalves said there are emerging signs that reduction in imported steel, with a following domestic steel industry production increase, may happen in the second half of this year.
That would lead to increased demand for Cliffs’ iron ore.
“Our worst days are likely behind us,’’ Goncalves said, praising his employees efforts to date and imploring them to weather the storm. “As actions are taken to combat the influence of unfairly traded steel in the United States, we expect to see improved industry operating conditions and profitability in the second half of this year.”
Goncalves said the United shutdown may have a silver lining, offering a chance to start reworking the plant to produce a so-called ‘”superflux” taconite pellet. That new product will replace a flux pellet now made at Cliffs’ Empire/Tilden operation in Michigan which is scheduled to shut down at the end of 2016.
Goncalves said he expects no additional layoffs at Cliffs’ other Minnesota facilities.
