Iron Ores

SIC 1011

Companies in this industry

Industry report:

This classification covers establishments primarily engaged in mining, beneficiating, or otherwise preparing iron ores and manganiferous ores valued chiefly for their iron content. This industry includes production of sinter and other agglomerates, except those associated with blast furnace operations. Blast furnaces primarily engaged in producing pig iron from iron ore are classified in SIC 3312: Steel Works, Blast Furnaces (Including Coke Ovens), and Rolling Mills.

Industry Snapshot

Virtually all of the iron ore mined in the world is used in steel making. In the United States, the largest producers are concentrated in a few states that account for the country's national output of usable iron ore. According to the U.S. Geological Survey, mines in Minnesota, Michigan, and two other states shipped about $2.4 billion worth of usable iron ore in 2005. Minnesota accounted for about 76 percent, while Michigan accounted for nearly 24 percent. In 2005 the total production of usable iron ore increased to about $2.37 billion. Overall, the United States produced 3.5 percent of world iron ore output and consumed approximately 4 percent.

In 2005 the U.S. Census Bureau reported 27 establishments engaged in mining, beneficiating, or otherwise preparing iron ores and manganiferous ores valued chiefly for their iron content. At that time, the industry employed about 5,109 people.

The U.S. iron ore industry is dependent on the domestic steel industry, most notably the large integrated steelworks along the Great Lakes. These integrated manufacturers use blast furnaces to turn iron ore, coke, and limestone into pig iron and then into steel.

High labor and fuel costs, declining ore grades, and the inland location of the country's mines make it difficult for the United States to compete in the world iron ore market. U.S. iron ore producers are meeting these demands by making higher-quality fluxed iron ore pellets that can meet the tight chemical and physical specifications that are needed to make higher quality steels.

U.S. iron ore production decreased in the late 1990s in response to the Asian financial crisis that began in 1997, when Thailand devalued its currency and set off a chain reaction of devaluations in the region. Foreign producers, unable to find buyers for their steel products in their depressed regions, supplied low-cost exports to the United States, thereby decreasing the need for domestic iron ore. The situation did not improve during the first years of the 2000s. U.S. mine production of iron ore dropped 26.8 percent to 46.2 million metric tons in 2001, down from 63.1 million metric tons in 2000. Production increased in 2002 to 51.6 million metric tons only to decrease to 48.6 million metric tons in 2003. Production then increased in 2004 to 54.7 million metric tons but dropped slightly in 2005 to 54.3 million metric tons. However, the industry was expected to have a strong performance in 2008 and beyond due to consolidation and high demand from worldwide customers.

In fact, global iron ore demand and prices were predicted to increase dramatically in the mid-2000s. One analyst cited the price hike as a direct result of China's growth in relation to rapid industrialization, indicating that this was spurring significant demand for commodities. Other analysts attributed the price increases to supply constraints. Whatever the turnaround, mining companies were looking forward to increased profits, while others were concerned about worldwide price hikes that could cause a domino effect in related sectors.

Earlier predictions of price hikes were realized in 2008 when the price per metric ton of iron ore reached $70.43 per metric ton compared to $59.64 per metric ton in 2007 before dipping slightly in 2009 to $70.00 per metric ton. By the late 2000s, China's growth spurt began to wane.

Organization and Structure

The United States maintained a close relationship with Canada in regard to iron ore trade. Over the course of the 1990s and 2000s, the United States was a net importer to meet demands for iron ore. Since 1990 about 54 percent of U.S. imports have come from Canada and stood at 70 percent in 2005, while 95 percent of U.S. exports went there (11.8 million metric tons in 2005). The reasons for the tight relationship included ownership and proximity. In the late 1990s Canadian steel mills owned part of three of the nine iron ore producers that accounted for 99.5 percent of U.S. ore production. Likewise, one U.S. iron ore company and one U.S. steelmaker had partial ownership of one of three iron ore producers in Canada. Also, the proximity of the countries and the location of the Great Lakes, which were used for transportation, meant lower shipping costs for each country.

The high-grade direct shipping ore of Michigan and Minnesota has all been mined in the United States. Lower-grade taconite, which requires the more expensive processes of beneficiation and pelletizing, makes up the bulk of U.S. mining today. Many of the pelletizing and taconite mining facilities are in the interior of the country, forcing higher transportation rail costs to ship to the Mid-Atlantic and Alabama steelworks. Since these mines are far away from saltwater harbors, imported iron ore from Canada, Brazil, and Venezuela makes up a large portion of iron ore consumed on the East Coast.

For the inland steel-making region, the same high rail costs that keep U.S. iron ore from being competitive for use at coastal steelworks also act to keep foreign ores from being used in their region. The St. Lawrence Seaway is an inexpensive transportation route to the Great Lakes, but it can also become a bottleneck for iron ore carriers trying to supply the steelworks in this region. Some oceangoing iron ore carriers cannot enter the Great Lakes because of the short gate-to-gate river locks.

Similarly, U.S. iron ore bound for foreign shores on 1,000-foot ships cannot leave the locks. Ore often has to be off-loaded onto smaller gulf vessels or transferred to railcars at Philadelphia or Baltimore. Sometimes, to reach the many steelworks in the Pennsylvania and Ohio River Valley, iron ore is barged up the Mississippi River through the port of New Orleans.

A handful of states account for the country's national output of usable iron ore. Minnesota and Michigan are by far the largest providers of iron ore in the country. In 2005 Minnesota produced 41.4 million metric tons of ore, out of the total 54.3 million metric tons produced, while Michigan produced 12.9 million metric tons. Operations from other states accounted for less than 9,000 metric tons.

Background and Development

Making up 5 percent of the earth's crust, iron is the fourth most abundant rock-forming element. Iron ore is the primary source of iron for the world's iron and steel industries and is the cheapest and most widely used metal.

The first known use of iron ore from the United States was when several barrels of ore were shipped from Virginia and Maryland to England for testing in 1608. The ore was found to be of good quality, and an attempt was made to build an ironworks near Falling Creek, Virginia. An Indian raid in 1622 ended that early undertaking.

In 1645 Massachusetts became the first regular production site for iron ore in the colonies with the building of the Hammersmith ironworks just north of Boston. Other furnaces built in Rhode Island, New Jersey, and Connecticut soon followed. During the next 100 years, iron making spread southward and westward, with many new mines opening to meet the surging demand. By the beginning of the Revolutionary War, iron ore was mined and smelted in 12 of the 13 colonies. Pennsylvania became the center of iron making.

By the 1840s the northeastern furnaces began to close because of a scarcity of charcoal and ore, but smelting in Tennessee, Missouri, Alabama, and Texas easily met the demand. In 1844 the discovery of the reserves contained in the Marquette Range in Michigan supplied new hard ores. Before the completion of the Sault Ste. Marie shipping canal in 1855, development of the industry in this region was slow, but with this new transportation route came further development of the Lake Superior region. By 1885 the Gogebic and Menominee Ranges of Michigan and Wisconsin began producing more than two million metric tons of ore, more than 20 times the volume produced in 1860. Smaller mines in New York, Tennessee, and the Mid-Atlantic states could not compete with the high grades and low water transportation costs of ore coming out of this region. Production from the Vermilion Range in the 1880s and the discovery of the Mesabi ores in the 1890s helped to close most of the Eastern mines in the United States by the turn of the century. Birmingham, Alabama, became a major iron ore center at this time.

Iron ore properties in the Lake Superior district were bought by steel companies, and small mines were consolidated into larger ones by the mergers of large mining companies. The structure of the iron ore industry today is a direct result of the consolidations that took place between 1893 and 1905.

In the 1950s hundreds of U.S. mines closed because of greater imports, the rising costs of underground mining in America, and depleted ores of higher grades. By 1981 some 15 mines accounted for 90 percent of America's iron ore production. Only five years later, increasing steel imports and two severe recessions reduced the number of iron ore mines from 15 to 10. The numbers were slightly up in 1991, when iron ore was produced by 20 companies operating 24 mines (23 open, 1 underground), 16 concentration plants, and 10 pelletizing plants. However, by 1998 iron ore was being produced by only 12 complexes with 12 mines (11 open pit, 1 underground), 10 concentration plants, and 10 pelletizing plants. In 1998, 5 companies operating 9 mines produced 99.5 percent of the ore.

Electric arc furnace steel-making in the United States, which accounted for 43 percent of total steel-making in 1993 and does not use iron ore, is the technology most often used by minimills, the chief competition of integrated outfits. Minimills substitute metal and iron scrap for iron ore to melt in their furnaces and made great inroads into integrated steel's market share in the 1980s. However, during the 1990s the minimills were faced with 50 percent increases in scrap prices, and as a result they were forced to vertically integrate, sometimes taking on the cost structures of their larger integrated competitors. Nevertheless, minimills remained strong competitors. Their share of the steel market, which stood at 15 percent in 1970, increased to more than 43 percent by 1997.

In the late 1990s, imports of low-priced steel plagued U.S. producers, especially following the Asian financial crisis that began in 1997. While the market picked up early in 1998, which had been looking like a good year with domestic iron ore production and consumption rates into the third quarter exceeding those of 1997, the rates dropped off at year-end because of record imports of low-priced steel. As a result, two of the seven iron ore producers in Minnesota's Mesabi iron range reduced production. Though U.S. steel consumption remained strong that year, a majority of that consumption was met by steel imports. The strength of the U.S. dollar against foreign currencies made imports cheaper. The Asian financial crisis also made imports more enticing. As Asian economies weakened, steel consumption in that region declined, and the area's producers looked to the U.S. market to sell their products. Throughout 1998 the United States imported vast amounts of inexpensive semifinished steel. These falling world export prices also hurt domestic steel producers.

The U.S. steel industry accounts for 98 percent of iron ore consumption in the United States. Following a relatively strong performance during the 1990s, the iron ore industry stumbled in the early 2000s. In 2001 domestic iron ore mine production dropped from 2000's 63.1 million metric tons to 46.2 million metric tons, or 26.8 percent, of the 1.05 billion metric tons produced worldwide. This amount represents the largest decline since 1982. Reported year-to-date total production in October 2002 of 42.0 million metric tons was slightly ahead of the previous year's October year-to-date total of 39.9 million metric tons.

Between 1990 and 2001, domestic suppliers provided 70 percent of U.S. demand. In 2001 domestic production supplied 60 percent of domestic U.S. demand. LTV Steel Mining Company in Minnesota was permanently closed, and Empire Mine in Michigan made a permanent reduction in production. The effect caused an approximate 15 percent decrease in production capabilities, or 10 million metric tons per year. No longer able to compete with low-priced imports, Pea Ridge Iron Ore Company in Missouri, the only active underground iron ore mine in the United States and one of the few in the world, also closed.

Consolidation of mining operations that began in 2000 continued in the following years. In 2001 approximately 50 countries produced iron ore, but the seven largest producers provided more than 80 percent of the product, with no other country producing more than 5 percent.

Following the economic decline in the United States in early 2001, experts began predicting an upturn for 2002. However, the terrorist attacks of September 11, 2001, stymied all expectations for a quick recovery. At the end of that year, the iron ore industry had taken a major hit. Bankruptcy loomed for several companies, and others stopped production for weeks at a time. During 2002 the iron ore industry was still operating with a net loss of income, as expenses exceeded revenues.

By early 2003 industry leaders were once again hopeful about the future, as companies cut costs by employee reductions and scaling back unprofitable business segments. Analysts also gave a nod to improvements being implemented in the steel industry with direct affects on sales of iron ore. To return to profitability and compete with the increasing competitive international market, iron ore companies continually endeavored to cut costs and increase efficiency.

According to the U.S. Geological Survey, 2005's domestic iron ore mine production decreased slightly from 2004's 54.7 million metric tons to 54.3 million metric tons. This represented 3.5 percent of the 1.53 billion metric tons produced worldwide. During 2005 some 12 mines produced iron ore, with Minnesota (6 mines) and Michigan (2 mines) leading all states and accounting for 99 percent of production.

The reported U.S. consumption of iron ore and agglomerates was 60.1 million metric tons, down significantly from 64.5 million metric tons consumed in 2004. The consumption of iron ore is directly related to the number of blast furnaces in use. Between 1992 and 2004, the number of active blast furnaces decreased every year but one, falling from 43 in operation in 1992 to 29 in use in 2004.

By the mid-2000s, China's increased demand for steel had forced the country to look at U.S. iron ore, namely from Minnesota. Over the past few years, China had more than doubled its iron ore imports and its suppliers could not keep up with their demand. U.S. Steel commenced operations to fill the 650 billion metric tons of iron ore for export to China. In the meantime, Australia and South America have since stepped up production so they could continue to meet China's demands in the future with cheaper shipping costs. Exporting ore overseas from Michigan and Minnesota historically has been cost prohibitive, since shipping charges can account for as much as 75 percent of the ore's final cost.

Various reports that demand for iron ore would increase from April 2005 through April 2006 resulted in expectations that the value of iron ore would increase by more than 70 percent. Upon conclusion of the iron ore miners' annual contract negotiations on April 1, 2005, some major steelmakers agreed to these iron ore price hikes and signed contracts to that effect. One steelmaker, Companhia Vale do Rico Doce (CVRD), contracted with Nippon Steel at a 71.5 percent increase. Amidst skyrocketing demand from Beijing, some observers indicated that Nippon Steel's acceptance of the higher price was due to fears that the company would run out of supplies. That news had iron ore miners worldwide anticipating if that would be the ongoing trend, while others viewed it as possible worldwide inflation in other raw materials, specifically steel products.

Current Conditions

According to data released by the U.S. Geological Survey, domestic iron ore production remained relatively steady throughout the late 2000s with 53.6 million metric tons reported in 2008. Michigan and Minnesota continued to maintain their lead as the top producing states responsible for 99 percent of domestic usable iron ore with an estimated value of $2 billion in 2009.

During January 2010 domestic mine production of iron ore fell five percent to 97,900 million metric tons per day when compared to the previous month and 4,700 million metric tons below production from December 2009. However, daily shipments were 39 percent below those reported in December 2009. Exported iron ore was 11 percent higher than imported iron ore in December 2009. In fact, the Lake Carriers" Association reported cargos carrying iron ore on the Great Lakes fell to levels not seen in some 71 years. From a peak of 97.4 million tons in 1953 down to 28.8 million metric tons for 2009.

Meanwhile, the previously announced plan with the United States' Steel Dynamics Inc. to construct an innovative new iron-making facility to be located in Hoyt Lakes City, Minnesota was completed on schedule following two years of construction capable of producing 500,000 metric tons of high-grade iron nuggets annually.

Another industry development came with the announcement that Consolidated Thompson Iron Mines Ltd. of Montreal, Quebec had entered into a definitive agreement with a subsidiary of SK Group of Seoul, Republic of Korea to provide one million metric tons of iron ore concentrates annually over 10 years. Early on, Consolidated Thompson will produce eight million metric tons per year.

A surge in steel demand translated into record profits for one industry leader, Cliffs Natural Resources Inc. by 57 percent during the first quarter of 2010 compared to its previous year loss. The company expected that trend to continue throughout the remainder of the year as the steel industry raised its capacity utilization. While steel capacity utilization was making inroads, it is "nowhere near where it was during the height of the economy--and it might not get back there soon," John P. Surma, chairman and CEO of U.S. Steel Corp. noted in American Metal Market in June 2010.

Industry Leaders

The industry leader was Cleveland-Cliffs Inc. of Cleveland, Ohio, with $1.3 billion in 2006 sales and about 4,189 employees. Also located in Cleveland was Oglebay Norton Co., with nearly $379 million in 2006 sales, and about 1,500 employees. Other leaders included Severstal North America Inc. (formerly Rouge Industries), based in Dearborn, Michigan, and Northshore Mining, of Silver Bay, Minnesota (a subsidiary of Cleveland-Cliffs Inc.).

Cliffs Natural Resources Inc. (formerly Cleveland-Cliffs Inc.) reported revenues of $3.6 billion in 2008 before plummeting to $2.3 billion in 2009 with 5,404 employees. The company constitutes nearly half of domestic iron ore production through its six properties. Oglebay Norton Co. was acquired by Pittsburgh-based Carmeuse Lime & Stone, the largest producer of lime products in the U.S. in 2008.

Workforce

Most iron ore mine workers were members of the United Steelworkers of America union. The metal ore mining industry experienced significant job reductions from 1994 to 2004 of 19,000 workers (from 46,000 to 27,000), according to the U.S. Department of Labor's Bureau of Labor Statistics (BLS). This drop was expected to continue through 2014 with an additional job loss of 8,000 workers. Per the BLS's May 2006 report, the leading category was construction and extraction occupations with 38 percent of the total, which included median hourly wages of $21.19 for a mean annual of $45,130. Following was installation, maintenance, and repair occupations with a median hourly wage of $22.61 and a mean annual of $47,330. According to the U.S. Geological Survey, employment in 2005 was 4,450 employees (not including professional or clerical workers) down from 11,103 in 1997; the industry's peak had occurred in 1953 with a total workforce of 40,100. Industry employment has fallen from the reported 4,450 workers in 2007 to 3,200 in 2009.

America and the World

In 2001 world iron ore production was at 1.05 billion metric tons, slightly down from the 1.08 billion metric tons produced in 2000, which had been a new record for world production. This figure had increased annually with production in 2005 at 1.53 billion metric tons.

China was the world's largest producer of iron ore, with an estimated output of 420 million metric tons (in gross weight) in 2005, a significant jump from 220 million metric tons in 2001. However, China's iron ore is a low-grade product, so the metal content from the ore is substantially lower than that from other producers. Brazil and Australia rank first and second in production of usable ore (in metal content), mining 185 million metric tons and 162.5 million metric tons respectively in 2005.

India also experienced dramatically increased output during the 1990s. In 2001 India produced 79.2 million metric tons, up 10 million metric tons in just four years. This rose by 43 percent to 140 million metric tons in 2005. Russia and the Ukraine both produced more than the United States in 2005, reporting 96.8 million metric tons and 68.6 million metric tons respectively. The United States ranks seventh in the global production of iron ore.

The United States produced 3.5 percent of the world's iron ore in 2005, continuing a steady downward trend from its 11.9 percent world market share in 1970. Imports climbed to an estimated 13.0 million metric tons in 2005, up from 2004's level of 11.8 million, reflecting the increase in demand. Exports for 2005 stood at an estimated 11.8 million metric tons, up from the previous year total of 8.4 million metric tons. World resources were 1.1 billion metric tons of crude steel production in 2005, up 7 percent from the previous year.

Research and Technology

Technological advances during the 1990s affected the structure of the iron ore industry in the United States in the mid-2000s. Many of the integrated steelworks began using fluxed pellets, which were created by adding fluxstone, limestone, and/or dolomite to the iron ore during the balling stage. A more reducible type of iron ore pellet was thus created. In 1990 U.S. production of fluxed pellets made up 39 percent of total iron ore pellet production. In many cases, integrated steelworks were trying to meet the growing fluxed pellet demand.

In the late 1990s, stricter environmental regulations restricting coke oven gas emissions closed some older integrated facilities. Ultimately, the closures forced the development of new technologies for those firms providing alternatives to scrap. With the closures, companies became concerned about the availability of low-reside scrap and invested in alternative iron-making technologies. Direct-reduced iron (DRI) is an alternative to scrap. During the 1990s DRI production grew rapidly. Then, responding to the same market conditions as the whole iron ore industry, DRI production dropped dramatically during 2001. Production was expected to return to its growth pattern, when the steel industry regains strength.

In November 2007 Japan's Kobe Steel Ltd. announced plans with the United States' Steel Dynamics Inc. to construct an innovative new iron-making facility to be located in Hoyt Lakes City, Minnesota, at a cost of $235 million. Expected to begin production in 2009, it is scheduled to output 500,000 metric tons of high-grade iron nuggets annually by using the company's "Ironmaking Technology mark three" (ITmk3), which cuts carbon gas emissions by about 20 percent.

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