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American Steel Buyers Hail Nippon Deal That Scares Washington




February 4, 2024 - Steel traders, automotive customers and even United States Steel Corp. workers are hailing the iconic American company’s decision to sell to a Japanese rival. That has left the steel industry wondering why politicians in Washington are eager to cast doubt on the $14.1 billion deal.

Nippon Steel Corp.’s December offer to buy US Steel — and the subsequent political pushback — was the hot topic when the industry gathered in Florida earlier this week at one of North America’s largest steel conferences. The overriding sentiment was that the deal will make domestic steel pricing more competitive than a takeover by US rival Cleveland-Cliffs Inc., while preserving jobs and avoiding antitrust issues.

“My understanding is steel consumers, steel customers are much happier with Nippon as the buyer,” Wolfe Research analyst Timna Tanners said at the Tampa Steel Conference.

The positive view from the industry hasn’t stopped the deal from becoming a lightning rod in a US election year, with opposition from United Steelworkers union leaders and several politicians. Republican frontrunner Donald Trump is threatening to block the takeover if he wins November’s election.

Both Democratic US Senators from US Steel’s home state of Pennsylvania want the deal killed, citing fears that union jobs at steel plants would be impacted. President Joe Biden’s top economic adviser said the transaction deserves “serious scrutiny” over the impact it might have on national security and supply chains.

Conference attendees dismissed any national security concerns, since Japan is a US ally. Some cited their familiarity with Nippon Steel, given that the Tokyo-based company has had a small US presence for years, as reason not to fear the foreign buyer.

While the Nippon Steel offer makes sense to many in the industry, its main hurdle remains the national security review by the Committee on Foreign Investment in the United States, or CFIUS. Public comments from top economic aides for Biden hint at the administration’s priorities to preserve union jobs and domestic manufacturing.

Steelworkers can’t block the takeover, but they hold significant sway in the American political arena — representing a chunk of blue-collar workers in swing states as the election season heats up.

“In terms of the union, it’s probably right they can get a pound of flesh and some promise for investment in their union jobs,” said Josh Spoores, the principal steel analyst at CRU Group.


American Steel Buyers Hail Nippon Deal That Scares Washington


Two of the largest so-called service centers  — middlemen who buy the alloy from steelmakers and supply equipment manufacturers and parts producers — noted that, until recently, massive foreign steelmakers were already competing in the US.

“This isn’t the first time that a foreign company has owned a lot of capacity in the US,” said Heidtman Steel Chief Executive Officer Tim Berra, referring to ArcelorMittal SA’s former US footprint.

“For Nippon to come in and purchase the mills doesn’t scare us,” said Berra, whose company sells a significant portion of its material to the auto industry. “If Cliffs would have won the deal and you relied on someone with blast furnace material, you would have been a little concerned about that because they would have owned all the blast furnaces in the US.”

In contrast, Marc Lerman of Steel Warehouse said he doesn’t see Nippon’s ownership changing anything “significantly” in terms of industry dynamics.

US Steel and its advisers flagged concerns throughout the company’s sale process that selling to Cliffs posed “substantial” antitrust issues. Such a combination would mean most of the US automotive steel market and as much as 95% of US iron ore output would be controlled by one company — giving it too much power over domestic prices.

US Steel employees expressed support for the Nippon takeover, saying there were concerns internally that a Cliffs acquisition would have triggered large layoffs for non-union workers and decimated the company’s footprint in its historic home of Pittsburgh.

Cliffs CEO Lourenco Goncalves lashed out at such criticisms during a Jan. 30 earnings call with analysts He accused US Steel’s board of “overreacting” to potential antitrust risks, and said Cliffs didn’t expect to shut any facilities or let go of union employees or plant workers due to “synergies” from its proposal.

The Cliffs offer is now off the table.