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Cliffs to lay off 125 in Silver Bay, Babbit

About 125 employees of Northshore Mining will be laid off Jan. 5 when the taconite operation idles two of its four pelletizing lines, according to an announcement issued Monday by the mine's owner and operator, Cliffs Natural Resources.

The pending layoffs will affect people working at Northshore's mine in Babbitt in addition to those working at the production facility in Silver Bay, but the exact breakdown of how many jobs will be trimmed at each location has not yet been determined, said Sandra Karnowski, Cliffs' district manager of public affairs.

Northshore Mining plans to operate with just two lines during 2013, but Karnowski said Cliffs will continue to monitor market conditions and will make upward or downward adjustments during the year as warranted by demand.

The layoffs will affect about 19 percent of Northshore's 671-person work force, which has no union representation.

Carlene Perfetto, Silver Bay City Councilmember, said that although Northshore Mining is still a vital employer in the area, their impact has diminished as the town has grown and other businesses have moved into the area. A period of layoffs is not as devastating for Silver Bay today as it would have been 40 years ago, when "if you didn't work at the mine you couldn't even buy a house."

"The mine built the town," she added.

Periods of reduced production at the facility and its accompanying layoffs are something the town has come to expect.

"It's not something we're totally unfamiliar with," she said.

That being said, layoffs are never easy for employees, even if they understand the company's reasons for cutting back.

"We don't like to see people without (that source of income)," Perfetto said.

Laid off employees at Northshore will receive supplemental unemployment pay and benefits based on their length of service to the company, Karnowski said.

Cliffs also announced Monday that it will temporarily halt production at its Empire Mine in Michigan in April or May of 2013. The company reported this "extended summer shutdown" will result in the furlough of about 500 people.

Karnowski said the decision to cut output at the Northshore and Empire mines is not a reflection of the facilities' production costs. She said the decision was based on the customers they serve.

Pellets from the plants feed blast furnaces producing hot-rolled steel that goes into products such as automobiles and household appliances. While 2013 is forecast to bring decent growth in auto sales, many of those vehicles will be imported from Japan and Europe, Joseph Carrabba, Cliffs' chairman, CEO and president, said during a recent earnings call.

Likewise, Carrabba said much of the steel pipe now in demand for oil and gas transport is coming from foreign sources, too.

Cliffs anticipates that the steel market will utilize only about 70 percent of the North American steelmaking capacity in 2013. That's right around where the rate now sits.

In late September, Moody's, a credit-rating agency, lowered its outlook for the U.S. steel industry to "negative," indicating that until U.S. mills were consistently operating at 75 to 80 percent of capacity it would not upgrade its assessment to "stable."

Craig Pagel, president of the Iron Mining Association of Minnesota, said he's aware of no other Iron Range mines planning to throttle back production, and said it would be a mistake to read too much into Cliff's actions.

"I don't believe a short-term market indicator is a long-term trend," he said.

Chinese demand down

Peter Kakela, a Michigan State University professor and mining expert, said the biggest influence on iron prices has been Chinese demand.

China purchases nearly half of all steel produced in the U.S. and has driven global demand for the building material. But this year, China lowered its growth rate target to 7.5 percent -- the slowest pace in eight years -- and markets reacted.

Iron fines (the smallest particles produced in a mine) that had sold for $139 per ton in June fell to $89 in September, shedding more than one-third of their former value.

Kakela noted that the price has since strengthened, ending last week at more than $123 per ton. Nevertheless, he said: "That kind of volatility sends jitters through the industry."

Kakela views Cliffs' plans to trim production as a modest adjustment in a period of uncertainty.

"I do not see this as a big downward slope, but I also say that with my fingers crossed," he said.

"We're still in a slow climb out of recession, and up to this point, I think iron ore and steel have actually done better than the rest of the economy," Kakela said. "I don't see anything like the situation in 2008."

Still strong

Indeed, Minnesota's iron mining industry entered this year boasting the highest employment and wages it had paid in in more than a decade.

Pagel takes encouragement from the industry's performance.

"Iron mining is a leading indicator of our economy," he said. "It goes into everything from paper clips to ships. If a product's not made out of iron, chances are that you still need iron to produce it."

All six taconite plants in the state are now operating -- a far cry from 2009, when all of them ceased production at one time or another.

Northshore Mining's last shutdown that was unrelated to maintenance occurred during the second quarter of 2009. In 2010, it went from operating two pellet lines to four and has remained at that level since then.