One of the quiet trends in North American iron ore during the past decade has been the transition from steelmaker ownership of the continents iron ore mines to a concentration in the hands of several large steelmakers and one major merchant producer/seller of iron ore. That ownership change has divided the steel industry in North America into two groups: those who have their own ore supplies and those who must buy their ore on the open market.
What that means is that the iron ore mining companies have captured pricing power from the steelmakers, said Peter Kakela, a professor of natural resources development at Michigan State University in East Lansing. He called the trend the power shift from steelmakers to iron ore miners.
With world iron ore prices at record-breaking highs, steelmakers that have retained their own iron ore supplies have a built-in competitive advantage in producing steel. Kakela pointed out that iron ore pellets now routinely fetch as much as $220 per tonne in the world markets, more than six times the $33-per-tonne price that pellets fetched just eight years ago.
Because of that dramatic increase in the price of pellets, Kakela estimated that U.S. steelmakers that have their own iron ore supply could be saving some $100 per net ton in the production of hot-rolled band. In the world markets, where some mining costs are lower and prices higher, steelmakers who own their ore supply could be saving much more, up to $200 to $225 per ton of hot-rolled band, Kakela said.
As recently as the middle of the last century, most North American steelmakers owned iron ore mines that fed their mills and there were four major merchant sellers, he said. Today, only U.S. Steel Corp., Pittsburgh, and Luxembourg-based ArcelorMittal SA own their own iron ore supplies in North America, and Cliffs Natural Resources Inc., Cleveland, is the only major merchant seller.
Kakela pointed out that two other steelmakers are looking to benefit from iron ore ownership: Essar Steel Minnesota LLC, Hibbing Minn., plans to produce 7 million tonnes of pellets on the states Mesabi Range, and Steel Dynamics Inc., Fort Wayne, Ind., is in the process of increasing production to 500,000 tonnes of enriched ore annually at its Mesabi Nugget facility.