Week-In-Review: Steel Fights Back! BHP, Vale In Damage Control Mode

This week started with the horrible Samarco mine disaster in Brazil. Two mine dams burst and waste from tailings ponds created to service the iron ore mine flooded local villages and affected water supply within a 60-plus-mile area. The death toll has now reached eight people.

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My colleague, Stuart Burns, warned that the co-owners of the mine, BHP Billiton and Vale SA, could be in deeper water than anyone. Remember BP after the oil spill?

BHP CEO Andrew Mackenzie hopped the first flight to Brazil to put as best a face as he can on the response. Yet the Brazilian government has already set its sights on Vale and BHP as the responsible parties and literal owners of the disaster.

“If federal fines are applicable, we will apply them,” Environment Minister Izabella Teixeira told reporters. “There will be punishment, and under Brazilian law the environment has to be repaired.”

I don’t know what could be a better incentive to manage your mine waste properly than that.

Essar in… Minnesota?

Speaking of iron ore, Essar Steel is supposedly on track to produce iron ore pellets in Minnesota’s iron range. Minnesota? Seriously? Production? In the US?

It’s all true. Essar received about $70 million in state grants and state loans after taking on the challenge in 2007 to build one of Minnesota’s only integrated taconite and steel mills. It’s been a star-crossed project, with many starts and stops since then but, supposedly, the taconite facility will be opening in early 2016.

We’ve often lamented the permitting hurdles that must be overcome to mine in the US but, and this is if it really opens next year, it will have taken Essar only eight years and a few months from approval to production. A relative fast turnaround for a US mine. Finally, a mining company has hopped, skipped and jumped through the complicated local, state and federal regulatory process.

Who would have a problem with this?

Clliffs Natural Resources, that’s who. Cliffs is the other major producer of iron ore here in the states. Cliffs and other Minnesota producers such as U.S. Steel, Magnetation, and Steel Dynamics laid off workers there when they were faced with low iron ore prices over the last two years, and that’s not even mentioning competition from cheaper steel imports from China into the US. More production means continued low prices to Cliffs.

Well, it IS looking there’ll be less production in Brazil for the foreseeable future. For good reason.

Steel Still Under Pressure

Meanwhile, the American Iron & Steel Institute released a new study by economists from the US, Canada that said giving China “market economy” status from the World Trade Organization would would “severely damage the NAFTA steel industries and harm NAFTA economies.”

The AISI also hosted a conference call to tell reporters how efforts to secure greater protections from cheap steel imports, particularly those from China, are going. While the conference generally followed up the study, new dumping measures enacted last summer and pending legislation, one interesting argument that came out of it was what, exactly, is a market economy and why can’t China just “graduate” to being one? Yeah, it’s not like showing up for class and getting Cs long enough to move on.

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“We don’t believe [Market Economy Status] happens automatically,” said AISI president Thomas J. Gibson. “Under US law there are criteria, six, by which China’s status as a market economy should be judged. And we are just drawing the US government’s attention to that and asserting that China should not become a market economy.”

Nucor CEO John Ferriola took that a bit further.

“80 to 90% of the Chinese steel industry is either owned or strongly supported by the government,” Ferriola said. “When I see China, I see a company masquerading as a country that’s waging economic war on, at least the US, but also every country in the world.”