Steel Mills

Buyers Look Favorably on Marriage of USS/BRS

Written by Tim Triplett

The news today that U.S. Steel plans to purchase a 49.9 percent interest in Big River Steel, with an option to buy the rest within the next four years, surprised the market. But most of the steel buyers polled by Steel Market Update view the pairing of one of the nation’s oldest integrated producers with one of its newest minimills as a generally positive development.

Following are some of their (anonymous) comments:

• “If U.S. Steel rationalizes their assets and closes some of their higher cost steelmaking operations, the overall impact will be good for the company and the domestic industry.”

• “I think it’s a smart move on U.S. Steel’s part to invest in a successful, state-of-the-art EAF operation. BRS should be able to provide technical and personnel support with the new EAF mill at Fairfield. BRS could also supply substrates to the Lone Star tubular operations. Even though the move will net one less steel company, I don’t see anything significant to the customers.”

• “The purchase is an excellent move for USS and gives them a much needed boost, plus options operationally. If USS learned from their mistake in announcing no-index deals, then it could be quite good for customers, investors and USS. If they continue with their current commercial strategy, USS will have a very difficult time filling BRS 2.0, unless this move signals a significant downsizing of Granite City.”

• “I believe this is a good move for USS. They have needed an EAF mill to be competitive with the other EAF producers like Nucor. Big River has a customer base that USS can add to. They are also located in the South where U.S. Steel is not such a presence. It is about time USS reinvests to keep up with the rest of the domestic suppliers. However, does this mean that they will barge from BRS and idle Granite City?”

• “This is a major move (an integrated buying an EAF). It makes sense for USS from many perspectives, but it’s puzzling why BRS is asking out. I think the closure of Granite City is now imminent.”

• “This could be successful for USS if and only if they permanently close older and unprofitable operations. They need to become a smaller, more nimble and higher-end supplier if they are to survive. They have two strengths going for them: 1) iron ore deposits and 2) capabilities to produce high-end finished steel for automotive, appliance and the more difficult OCTG products. They need to race to convert from using the BF-based steelmaking process to the EAF process. Time will tell if they approach this partnership in the right way and succeed. Given their track record, I wouldn’t hold my breath.”

• “I’m surprised that USS was able to pull this off and also wonder why BRS sold virtually half the company for a seeming pittance. This spells survival and relevance for USS, but the move at this price by BRS still surprises.”

• “I’m not surprised that Big River was acquired, but I am surprised that U.S. Steel is making the acquisition. Most assumed it would be a fight between Nucor and SDI. We are currently doing both contract and spot business with BRS, so we are eager to learn what impact this will have on our relationship and future business transactions. Most concerning is that we are currently on an index-based program with BRS. However, USS has said they will not participate in these types of structured programs in 2020.”

• “It’s difficult to determine at this point if they will be successful, but it does give USS the southern exposure (including Mexico) they’ve been needing for some time. I would expect USS to rationalize some of its BFs at some point and would think they will continue to invest in BRS for value-added downstream products. I don’t expect much immediate impact on BRS accounts.”

• “My contacts suggest that USS’s stake, at less than 50 percent, will keep them out of day-to-day commercial operations. That is our hope, as we buy from BRS and would prefer not to complicate the sales effort. USS has a call option, so it’s possible they could eventually buy out BRS entirely. We value a diversity of sources, so this development does cause a little concern, as it could limit the independent nature of our supply base in the coming years.”

• “This probably makes more sense than USS spending $1.5 billion on new technology at Mon Valley. Since they announced the MV project, I’ve wondered why USS would not spend the same or similar amount on building a new mill in the South somewhere closer to growing sheet markets rather than investing all that money in Mon Valley. It appears they thought, why not buy a mill for a similar amount of money? It will be interesting to see if USS continues with their investment plans in Mon Valley and what the timetable is now for that project. It will be interesting to see the merging of nonunion and union operations. Is the USW licking their chops or shaking in their boots? It’s often said that new mills built in the U.S. (mills not built by Nucor and SDI) are always successful under the second ownership. Perhaps this will be the case again. I see the potential to fill BRS with orders that get taken away from other U.S. Steel operations. I think they are going to do everything they can to fill their 49.9 percent share, which could add to downward price pressures. More questions than answers…”

• “I think this deal sucks because Big River is customer-oriented and very easy to work with. USS is the opposite. But there is a difference between 49.9 percent and 50.1 percent, so hopefully the BRS philosophy will not change much.”

Initial comments by some analysts are less positive about the deal, raising concerns about U.S. Steel adding debt with a questionable return as the sector enters a downturn.

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