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Cliffs Supply Agreements Spell Essar Steel Minnesota Demise

Written by Sandy Williams

Cliffs Natural Resources’ supply agreement with ArcelorMittal “put the final nail in the coffin of Essar Steel Minnesota.” That is the opinion of Star Tribune columnist, Lee Schafer.

Schafer has a point, with Cliffs gobbling up Northern steel mill contracts, Essar will have no customers even if it is able to pull itself out of financial difficulty and start production of its taconite processing facility.

Cliffs recently secured a 10 year pellet supply agreement with ArcelorMittal that makes it the sole outside provider for ArcelorMittal USA. Cliffs also announced last week that it would restart United Taconite due to a contract negotiated with US Steel Canada to provide the majority of their iron ore pellet requirements for third and fourth quarter 2016.

Cliffs Chairman, President and CEO Lourenco Goncalves has been skeptical of the Essar Steel Minnesota project from the start, saying at the end of fourth quarter that he did not expect Essar to meet its projected completion deadlines. “Until they produce their first pellet they are just that, just a construction site in disarray, nothing else,” he said.

During the first quarter earnings call, he called the threat of competition from Essar Steel Minnesota “mute.” “It’s gone, game over,” said Goncalves.

The $1.65 billion Essar Steel Minnesota project was an exciting plan for Minnesota that was expected to create two thousand construction jobs, 700 permanent jobs and some 2000 supplier and downstream jobs. And, to cap off the deal, besides constructing a taconite facility it was to build the first steel making plant in the state. Beset by financial problems, the steel mill plan was eventually scrapped prompting Minnesota to demand repayment of more than $66 million in loans it gave towards the project.

Schafer pointed out that conditions in the taconite industry have been challenging globally as well as domestically. U.S. steel producers battled a surge of imports that displaced domestic demand, idled operations and reduced the need for taconite pellets. Cliffs found itself competing against nontraditional competitor US Steel, which after finding itself with excess capacity at its Minntac and Keetac operations, also pursued the ArcelorMittal contract.

“Fighting off U.S. Steel as a taconite competitor is both unusual and somehow typical of the American steel industry in the second challenging year of a stomach-churning downturn,” wrote Schafer. “Even with no Essar Steel Minnesota, it’s a battle over every slice of the pie. And the pie sure isn’t growing.”

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