Steel Mills

USS Said Eyeing Sale, Possible Late '23 Closure of UPI: Sources

Written by Michael Cowden

U.S. Steel is mulling a sale of its USS-UPI LLC subsidiary in Pittsburg, Calif. – potentially to a developer without long-term interest in running the mill, according to market participants.

Some employees have been told that the mill could stop operating in late 2023, they said.

US SteelNothing has been officially announced, none will be until a deal is a sure thing, and UPI will fulfill all customer commitments in any case, sources said.

A spokeswoman for Pittsburgh-based U.S. Steel did not confirm or deny whether the company intends to sell and potentially close UPI.

“As a matter of practice, we do not comment externally on discussions with our employees or customers. We regularly evaluate our footprint, but we do not have anything additional to disclose at this time,” she said.

SMU looks forward to hearing more about any potential sale and closure of UPI on U.S. Steel’s next quarterly earnings call, which is scheduled for Friday, Jan. 28 at 8:30 am ET.

Sale Rumors

This is not the first time that rumors of a sale of UPI have gripped the West Coast market.

U.S. Steel President and CEO David Burritt has indicated in past public statements that UPI was for sale.

Case in point: “We continue to actively market our valuable portfolio of real estate assets and are evaluating strategic options for our UPI business and related property,” Burritt said in second-quarter earnings guidance released on June 17, 2020.

He reiterated that point during U.S. Steel’s second-quarter 2020 earnings call on July 31 of that year: “We are evaluating strategic options for our UPI finishing business and related properties,” he said. “We are optimistic that we will be able to extract value from these assets.”

Burritt made those comments in the months following the initial outbreak of the COVID-19 pandemic in North America, a time when mills thought orders and cash might be scarce.

Steel producers subsequently had what might have been their best year ever in 2021, so it was not immediately clear why U.S. Steel might be actively engaged in efforts to sell UPI again more recently.

That said, U.S. Steel appears to have been getting its ducks in a row for a potential sale for some time.

USS-UPI was previously a 50-50 joint venture between U.S. Steel and South Korean steelmaker POSCO, which had in the past provided much of the substrate consumed at USS-UPI.

That arrangement became less tenable following a 2016 trade case that resulted in hefty countervailing duties on hot-rolled coil from POSCO. U.S. Steel purchased POSCO’s 50% stake in UPI in a deal that closed on Feb. 29, 2020.

The price: $3 million net of cash received of $2 million. The deal also included the assumption of accounts payable owed to U.S. Steel for prior sales of steel substrate of $135 million, according to an SEC filing that spelled out terms of the deal.

The Market Impact

USS-UPI is one of the major flat-rolled steel suppliers on the West Coast. The company converts hot band supplied by U.S. Steel into hot-rolled pickled-and-oiled (P&O), cold-rolled, and hot-dipped-galvanized sheet.

It also makes tinplate, which is widely used in the region’s agricultural industry – notably in the Central Valley, one of the biggest agricultural regions in the world. The result: one-third of UPI’s product goes to the canning industry, according to the company’s website.

That left some in the industry wondering where they might source quality tinplate from if UPI were to close, given a lack of suppliers not only domestically but abroad as well.

Europe is the primary supplier of foreign tinplate to the U.S. market. The Netherlands shipped 207,167.4 metric tonnes of tinplate to the U.S in 2021, according to Commerce Department figures. Germany was No. 2 with 186,988.6 tonnes.

The Possible Logic of a Deal

Pittsburg is approximately 40 miles from San Francisco, one the most expensive property markets in the U.S.

U.S. Steel might be able to make more money selling UPI and the property around it than it could making steel there. The property, if sold, could be converted to warehouse space, some market participants said.

There is precedent for such deals.

On the East Coast, for example, the former Bethlehem Steel mill in Sparrows Point, Md., near Baltimore, was converted into, among other things, a distribution center for sport apparel maker Under Armour. And in Chicago, specialty steelmaker A. Finkl & Sons. Co. – previously located on valuable property on the city’s North Side – was razed and operations moved to the South Side.

By Michael Cowden,

Michael Cowden

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