For more than a year, U.S. Steel pursued an ambitious solution to its growing challenges. It was once a symbol of American industrial might, but to stave off obsolescence it agreed to be acquired by Japanese rival Nippon Steel.
Citing the need for financing for the costly modernization of its mills, US Steel warned that if the deal failed, it would need to close plants and lay off workers.
Now, the $14 billion acquisition has been blocked by President Biden on national security grounds — and President-elect Donald J. Trump has openly opposed it – the company has few easier options.
Without a merger partner, the company may be forced to close its traditional steel plants, threatening the livelihoods of workers and the sectors that depend on them. Attempting to combine with a different competitor could face antitrust concerns. And it is behind the technological change from blast furnaces to electric furnaces.
US Steel is not giving up on the takeover by Nippon Steel. Both companies are suing the federal government, saying politics has corrupted its review process.
“Nippon Steel and US Steel are confident that this transaction is the best path to secure the future of US Steel and we will vigorously enforce our rights to achieve this objective,” US Steel spokeswoman Amanda Malikowski said in a statement. Will protect.” ,
US Steel primarily makes flat-rolled sheet steel, which is used in cars, trucks and appliances. Over the decades, increasing foreign competition has weakened the company as well as the entire domestic steel industry, especially as Chinese steel has come to dominate the international market.
In its heyday, US Steel was the world’s largest steel producer. However, according to the World Steel Association, by 2023, it was ranked 24th globally, far behind powerhouses like China’s Baowu and Nippon Steel.
The company recently enjoyed a resurgence due to efforts to protect it from competition. Tariffs imposed in the first Trump administration and increased steel demand – partly due to the construction boom earlier this decade – drove steel prices to record-highs, boosting U.S. Steel’s bottom line.
But that hasn’t eased concerns about the long-term viability of U.S. Steel. Compared to their foreign rivals, domestic steel companies have been slow to adopt “minimills” that are more energy-efficient and cost-effective than traditional mills. Small mills melt steel scrap in electric furnaces, a faster and cheaper process, while larger mills make steel from coke obtained from iron ore and coal.
Alden Abbott, a senior research fellow at George Mason University’s Mercatus Center and a general counsel for the Federal Trade Commission in the first Trump administration, said U.S. Steel “has done a poor job of modernizing.” “If it weren’t for the tariffs, it would have ended years ago.”
Some US companies have made a more concerted effort to update their production methods, including Nucor, which has become the top domestic producer. Ms. Malikowski, a U.S. Steel spokeswoman, said the company would continue to move away from blast furnaces regardless of the outcome of the Nippon deal. In 2023, US Steel Opened a plant in Arkansas Which runs on electric furnaces.
US Steel has said Nippon is the only buyer willing and able to make major investments and protect jobs at several steel mills. This includes at least $1 billion to build a new mill at the Mon Valley Works plant outside Pittsburgh and $300 million to retrofit the blast furnace at the Gary Works facility in Gary, Ind.
Both companies said last week, “Blocking this transaction means denying billions of investments committed to extending the lives of U.S. Steel’s aging facilities and putting thousands of good-paying, family-sustaining union jobs at risk.” “
JPMorgan Chase stock analyst Bill Peterson wrote in a research note that if US Steel operated as a stand-alone company, it would focus on its new plant in Arkansas and possibly cut its blast furnace assets. Will do.
But the United Steelworkers, the powerful union representing 11,000 U.S. steel workers, has strongly opposed the Nippon merger. It has accused the Japanese company of illegal business practices and bad faith in its dealings with the union.
The union had previously lobbied for a merger with Cleveland-Cliffs, an American company that had bid for US Steel in 2023 but lost to Nippon in a bidding war. Unlike Nippon, it is federal. (On Monday, U.S. Steel and Nippon sued Cleveland-Cliffs, accusing the company of colluding with steelworkers union head David McCall to undermine the Nippon Steel deal.)
“We have no doubt that this is the right move for our members and our national security,” the union said in a statement after Mr. Biden blocked the deal.
If U.S. Steel is sold to a competitor such as Cleveland-Cliffs, the combined entity would be formidable but could face federal antitrust investigations. However, it is unclear whether the Trump administration will take an aggressive approach to enforcement like the Biden administration.
John Newman, a University of Miami School of Law professor and former deputy director of the Federal Trade Commission’s Competition Bureau, said the merger with Cleveland-Cliffs would largely be challenged in court because domestic steel production already dominates. By some players. Nucor, Cleveland-Cliffs and US Steel account for half of U.S. steel production in 2023, according to the Commerce Department.
Regardless of political administration, “everyone agrees that type of merger is problematic,” Mr. Newman said. Conversely, “if you have a hypercompetitive market, some players shouldn’t be so concerned.”
But George Mason’s Mr Abbott said a domestic merger was more likely for US Steel than remaining a stand-alone entity. He said federal regulators under Mr. Trump could argue that a combined domestic steel company would be more competitive internationally.
“There’s also a political concern,” Mr. Abbott said, “that ‘we can’t let U.S. steel go down.'”
Cleveland-Cliffs did not respond to a request for comment.
Sara Bauerle Danzman, a senior fellow at the Atlantic Council and associate professor at Indiana University, said having one company take control of more domestic steel production would make steel — including steel produced for defense purposes — more expensive.
“You want to diversify the areas where steel is made,” Ms. Bauerle Danzmann said.
In a social media post on Monday, Mr Trump, who has vowed to block the takeover of Nippon, wrote that US Steel should be “led to greatness” and should not be sold to anyone.
“Why would they want to sell US Steel now when the tariffs would make it a more profitable and valuable company?” Mr. Trump wrote on Truth Social.
Cheap imported steel has been the goal for decades. Presidents George W. Bush and Barack Obama imposed tariffs on Chinese steel. Mr Trump went even further, imposing a 25 per cent tariff on steel from most countries in 2018. Mr Biden has used quotas to limit steel imports, in addition to expanding tariffs on some steel melted outside the United States.
Frank Giarratani, professor emeritus of economics at the University of Pittsburgh, who has studied the steel industry for decades, said the steel tariffs have primarily helped protect jobs. But they have not made domestic steel companies more productive or competitive internationally, he said, while investment in new technology would do so.
“This is about protecting jobs, and this only has temporary benefits,” Mr Ziaratani said. “In terms of making the industry competitive, the tariffs haven’t done that.”
Bill Farrier, leader of United Steelworkers Local 1557 in Clairton, Pa., said he was glad Mr. Biden has rejected the Nippon deal and pleased by Mr. Trump’s opposition to the merger. Mr. Farrier, a mechanic at the Mon Valley Works plant, said he wanted Cleveland-Cliffs to be the ultimate buyer, but any buyer would have to commit to wholesale improvements to the steel mills.
“I would like to see some modernization, new equipment,” Mr. Farrier said. “Then we can compete with anyone.”