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
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
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.