Final Thoughts

Final Thoughts

Written by Michael Cowden

I planned to write this column about some of the big themes we’ll be discussing at Steel Summit.

That plan changed when U.S. Steel announced on Sunday afternoon that it was considering a sale of all or part of the company after receiving multiple unsolicited offers.

It changed yet again when Cleveland-Cliffs said its offer for U.S. Steel had been rejected.

Cliffs chairman, president and CEO Lourenco Goncalves will join SMU for the first fireside chat at Steel Summit on Monday, Aug. 21. (The agenda is here.)

We had planned to talk about the sheet market, the automotive industry, and what might happen with automotive negotiations between the United Auto Workers (UAW) union and the “Big Three” automakers. I think it’s safe to say that we might have another topic to discuss.

It’s possible neither company will say anything beyond what was made public on Sunday. Even if that’s the case, the issue will no doubt by a topic along the sidelines of the event.

A Shakeup in Steel

I’m from Pittsburgh. U.S. Steel and the Steel City have been synonymous for as long as I can remember. The idea of that changing is as hard for me to imagine as the Steelers playing in Cleveland.

But perhaps it shouldn’t be. It once was hard to fathom the idea that Cleveland-Cliffs, primarily an iron ore miner and blast furnace pellet producer, would acquire AK Steel and ArcelorMittal USA in 2020 – transforming itself almost overnight into one of the largest sheet producers in the US and the largest sheet supplier to automotive. (Also, as family in Baltimore sometimes reminds me, it was once inconceivable that the Colts would leave Baltimore.)

Surprising things can happen when you start a sale process, outcomes that neither party might have imagined before the formal reviews got underway.

So let’s consider what some possibilities might be at U.S. Steel. The first thing that came to my mind was a potential separation of U.S. Steel’s union operations and Big River Steel, its non-union EAF mill in Osceola, Ark.

Here’s why that possibility comes immediately to mind.

Not long after I started covering steel (more than 15 years ago no), I heard talk that U.S. Steel shareholders might be better served if the company kept its mining operations – which were seen as profitable – and sold off some of its older rolling mills.

The talk was that the company made money at the mines but burned it at its hot-strip mills. I never thought that was a fair characterization. We have, however, seen developments along those lines in the years since.

Recall the non-binding deal announced in June of last year by U.S. Steel and SunCoke Energy?

It’s not yet clear whether or when that transaction will close. But the broad outlines of the deal make sense. SunCoke would take over the blast furnaces at Granite City – an older, union-represented, integrated mill – to make granulated pig iron from ore produced at U.S. Steel’s mines.

That pig iron could then be consumed at other mills, notably EAFs like Big River Steel.

What’s the connection? U.S. Steel has said Granite City would then stop making steel in the second half of 2024. Big River Steel, meanwhile, is expected to start up a new sheet mill next to its existing one in mid-2024, bringing total capacity on the campus to six million tons per year.

Also, U.S. Steel in April 2021 said that it would not, as previously announced, build a $1 billion “endless” casting and rolling facility at its Mon Valley Works near Pittsburgh. It instead focused on investment at Big River Steel.

Let’s in addition remember that US Steel in 2019 announced that it would idle blast furnace and hot strip mill operations at its Great Lakes Works near Detroit.

Notice a trend here?

Are Union BFs and Non-Union EAFs Compatible?

In short, U.S. Steel seems to have significantly consolidated iron and steelmaking at its union-represented, integrated steel mills at its Gary Works near Chicago. It is at the same time building out EAF capacity near Memphis, Tenn., at Big River.

I recall Steel Dynamics Inc. (SDI) co-founder, chairman and CEO Mark Millett saying at an industry event about a decade ago that he didn’t see the cultures of union and non-union mills as compatible.

The reference probably wasn’t lost on the audience. Severstal North America was up for sale. Its primary assets were an integrated mill in Dearborn, Mich., and an EAF mill in Columbus, Miss. The Dearborn mill was ultimately acquired in 2014 by AK Steel, a union mill, and Columbus by SDI, a non-union mill.

The players might be different. But, even ~10 years later, the underlying issues might not be. So could we see something similar happen at U.S. Steel – a splitting off of union and non-union mills? Stranger things have happened.

In the meantime, thanks from all of us at SMU to all of you for your time and business.

Michael Cowden

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I’ve had discussions with some of you lately about where and when sheet prices might bottom. Some of you say that hot-rolled (HR) coil prices won’t fall below $800 per short ton (st). Others tell me that bigger buyers aren’t interested unless they can get something that starts with a six. Obviously a lot depends on whether we're talking 50 tons or 50,000 tons. I've even gotten some guff about how the drop in US prices is happening only because we’re talking about it happening.