Cliffs shutters Northshore amid weak iron ore demand

Cliffs Natural Resources (NYSE: CLF), the largest U.S.-based iron ore producer, is temporarily closing its Northshore Mining operation in Minnesota by Dec. 1, to reduce its record-high iron ore inventory levels amid weaker iron ore demand in the U.S., and globally.

The company will lay off most of its 540 employees at the Northshore iron ore mine in Babbitt and taconite pellet processing plant in Silver Bay.

The Cleveland-headquartered producer intends to keep 70 employees through the shutdown, expected to last until March 2016. It will retain another 20 employees through January to help ship the remaining pellets, Cliffs’ director of corporate communications Patricia Persico says.

Northshore is the second operation in Minnesota Cliffs has temporarily closed in recent months. In August the miner halted its United Taconite operation, comprising the mine in Eveleth and processing plant in Forbes. The move affected 420 employees.

“We’ve got a lot of inventory on the ground,” Persico says, explaining that an influx of foreign steel in the U.S. — due to slowed growth in China — has flooded the market with steel.

“The domestic producers are just not producing steel, and our product goes into steelmaking — the iron ore pellets.” As a result, Cliffs’ domestic steelmaking customers have reduced their demand, leaving the company with a seasonally high level of pellet inventory. 

Cliffs expects to idle both the Northshore and United Taconite operations through the first quarter of 2016.

It notes that restarting operations will depend on market conditions and the outcome of the trade cases that six U.S.-based steelmakers have filed against several countries — including China, India, Italy, South Korea and Taiwan — for “dumping” steel at below-market prices into the U.S.

“As soon as the unfairly traded steel problem subsides and domestic steel production recovers to normal levels, we will immediately ramp-up iron ore pellet production by bringing idled capacity back to operation,” Cliffs’ chairman Lourenco Goncalves said in a press release.

Cliffs will continue to operate its Hibbing Taconite mine in Minnesota and the Tilden and Empire iron ore mines in Michigan at normal rates.

While Cliffs’ cost expectations this year are unchanged, it is lowering its 2016 cost guidance despite reducing tonnage. 

It expects cash production costs of US$50 to US$55 per ton and cash cost of goods sold to range between US$60 and US$65 per ton next year. This includes US$9 million per month in idling costs for the Northshore and United Taconite mines.

Cliffs — whose Canadian iron ore subsidiary filed for bankruptcy in January — has tightened its purse strings while iron ore prices plunge due to oversupply and weak Chinese demand.

In November, iron ore prices fell to a four-month low of US$47 per tonne, down from US$75 per tonne a year ago.

Cliffs shares fell 12% to finish Nov. 17 at US$2.36, on 8.3 million shares traded. The company’s share price has fallen 66% year-to-date.