With $14 Billion U.S. Steel Deal in Limbo, Nippon Steel Seeks Community Support
Japanese steelmaker’s vice chairman visits Pittsburgh area and says company is ready to ‘share all the fruits of our technology’
Nippon Steel has launched a charm offensive to win support for its planned acquisition of U.S. Steel in a bid to counter the deal’s staunchest critics.
U.S. Steel shareholders overwhelmingly approved the company’s $14.1 billion takeover in April, but the deal remains bogged down by federal regulatory review and a raft of opposition. Leaders of the United Steelworkers union, some members of Congress and Cleveland-Cliffs, U.S. Steel’s main rival, have panned the purchase. President Biden has expressed skepticism about it.
Takahiro Mori, vice chairman of the Tokyo-based steelmaker, met this past week with business executives and government leaders in the Pittsburgh area, which includes U.S. Steel’s headquarters and its Mon Valley Works operation. Mori hosted a dinner and a presentation for about 150 people that lasted more than two hours.
“This transaction is about growth,” Mori said in an interview. “We’re going to share all the fruits of our technology.”
The company said it would invest at least $1.4 billion to improve the performance of U.S. Steel’s older mills, which also include operations in Indiana. Nippon Steel spends more than $500 million a year on research and development, compared with about $40 million by U.S. Steel, according to the companies. Mori said Nippon Steel’s chief technology officer will visit the Mon Valley Works as part of the planning for production improvements.
Residents of some of the small towns surrounding the Mon Valley plants have complained for years about air pollution and a lack of investment in maintenance. Mori has pledged to use hydrogen energy to reduce Mon Valley’s carbon-dioxide emissions from burning coal in blast furnaces.
Elaina Skiba, borough manager of Glassport, Pa., said she and other community officials have been skeptical about the acquisition and concerned about the future for the Mon Valley operation, but she left the presentation with more confidence in Nippon Steel’s plans.
“Nippon has no intention of closing this mill,” she said. “They want it to succeed. They’re not going to put this kind of money on the table to close it.”
Mori is planning several stateside visits this summer, but didn’t meet with union leaders in the latest visit. The union is seeking commitments from Nippon Steel on specific plant upgrades and has been dissatisfied with the Japanese company’s attempts to maintain the current labor agreement with U.S. Steel.
The union said Mori’s visit was a “desperate last gasp” by the two companies to save the deal and accused Nippon Steel of trying to escape its obligations under the union’s contract with U.S. Steel.
The union endorsed Cleveland-Cliffs’ attempt to buy U.S. Steel last year. In turn, Cleveland-Cliffs Chief Executive Lourenco Goncalves is backing the union’s opposition to the sale to Nippon Steel. He said recently that the deal is dead without the union’s support.
Nippon Steel is seeking to close its purchase by year’s end, pushing back the deadline by a few months. It has said it would refrain from plant closings and layoffs through the end of U.S. Steel’s union labor agreement in 2026.
Slowing market
A weakening American steel market threatens to add uncertainty to Nippon Steel’s investment plans. Falling steel demand and low prices would ratchet up the pressure on the company to conserve cash and reduce expenses.
Manufacturing activity has receded in some steel-consuming industries, including parts of the construction industry, commercial trucks, farm machinery and home appliances. Contributing to the downturn is the absence in recent years of panic buying caused by Covid-related supply bottlenecks, Russia’s war in Ukraine and other market shocks that drove up prices.
Some steel mill executives describe reluctant buyers as being on a diet. The U.S. spot-market price for hot-rolled coiled sheet steel was $750 a ton on Friday, down nearly 30% from a year earlier, according to S&P Global Commodity Insights. The benchmark price sank to $690 in September when a strike against U.S. automakers chilled steel buying, but went as high as nearly $2,000 a ton in 2021.
A decline in shipments hurt U.S. Steel’s first-quarter performance, with sales falling 7% from a year earlier and net income shrinking 14%.
Mori said a soft American steel market wouldn’t sidetrack spending to improve U.S. Steel. Nippon Steel executives have been dealing with a yearslong slump in Japan, where the company is the country’s largest steel producer.
Japan’s estimated steel consumption—which includes domestic steel production and imports minus exports—sank 17% from 2019 to 2023, according to the Japan Iron and Steel Federation. Nippon Steel has closed some plants in Japan in response to falling demand.
American steel consumption slipped 7% during the same period, according to the American Iron and Steel Institute.
Presidential campaign issue
Nippon Steel has the economics worked out on the deal, but the politics is a work in progress.
Biden, who won Pennsylvania in the 2020 election, has signaled opposition to foreign ownership of U.S. Steel, though he hasn’t explicitly said he would block the deal, which is now under national-security review by a Treasury Department-led committee.
The presumptive Republican presidential nominee, Donald Trump, has publicly criticized the deal, which could become an important issue in Pennsylvania, seen as a battleground state in the presidential contest.
The Justice Department is also reviewing the merger for market-concentration concerns. Nippon Steel is part owner of a steel mill in Alabama with the steel company ArcelorMittal.
“We are confident that we will be able to clear the issue if we are properly screened,” Mori said.
Nippon Steel said the deal reflects confidence in the U.S. steel market in the long run. The American market features some of the highest steel prices in the world, helped in part by tariffs on lower-cost imports. Domestic steel demand in recent years has been underpinned by spending on factory and warehouse construction and government-funded technology and infrastructure projects.
“It’s kind of an ideal place,” said Martin Englert, an analyst for Seaport Research Partners.
The purchase of U.S. Steel would double Nippon Steel’s overseas steel production capacity and profit. The company’s long-range goal is to raise its overall production capacity to 100 million metric tons a year.