Steel Products

Final Thoughts

Written by Michael Cowden

You could make a case that Nov. 1 was April Fool’s Day for steel – or at least for the widespread rumor that Cliffs would announce a $10-billion deal for U.S. Steel on that date.

I’m not going to endorse any precise date or price tag. But I’d be surprised if a deal – or at least some developments regarding one – isn’t announced sometime over the next month.

That said, the $10B on Nov. 1 rumor never really made sense to me. Where did it start? No one I talked to seemed to know. It felt almost like a call going around to steel buyers from a mill rep telling them to get their orders in soon – presumably before a price increase.

Was that what it was about? To dredge up potential buyers? But enough of that Nov. 1 stuff. Here is the consensus/speculation I’ve heard from some of you since.

For starters, Cleveland-Cliffs probably wants to be “the king of blast furnaces” – and of the iron ore mines that feed them. What supports that? Well, Cliffs is the only company to have publicly disclosed its interest in buying U.S. Steel. And I do not doubt that the Cleveland-based steelmaker is doing everything possible to make a deal happen.

What are the obstacles? One is more opposition among automakers than the company faced when it acquired ArcelorMittal USA and AK Steel in 2020. Those deals gave Cliffs a commanding position in automotive, one rivaled only by U.S. Steel. The Alliance for Automotive Innovation – a lobbying group for automakers – has sought government intervention to prevent further consolidation.

What Might the Result of That Be in Terms of The Sales Process?

Canadian flat-rolled steelmaker Stelco has been reported to be in the mix to buy U.S. Steel. I can’t see the Hamilton, Ontario-based company snapping up all of U.S. Steel. It has only one active blast furnace in Nanticoke, Ontario, according to SMU’s blast furnace status table.

But could it get an integrated facility in the US – say Cliffs Dearborn (Mich.) Works or Cleveland Works – as part of a joint bid or a subsequent transaction following a deal for U.S. Steel? That makes some sense. It might alleviate antitrust concerns. It would also give Stelco a bigger footprint in the Great Lakes, melt capacity in the US, and an insurance policy should the threat of Section 232 against Canada ever rise again.

There might also be something of an irony there. Recall that U.S. Steel once owned Stelco under the somewhat unusual name of “U.S. Steel Canada.” When U.S. Steel finalized its sale of Stelco in 2017, I did not think that, more than six years later, the company might be in the running to buy (at least part of) its former parent.

Who Might Other Potential Bidders or Acquirers Be?

ArcelorMittal – which used to own many of the integrated mills now operated by Cliffs – is also rumored to be in the mix for U.S. Steel. I doubt the Luxembourg-based steelmaker wants to own union-represented integrated mills in the Midwest again. But I’m pretty sure it would – along with Japan’s Nippon Steel – be interested in acquiring Big River Steel, U.S. Steel’s EAF sheet mill in Osceola, Ark.

ArcelorMittal teamed up with Nippon in 2014 to buy the former ThyssenKrupp mill in Calvert, Ala. That mill is now its flagship in the US. ArcelorMittal also has HBI capacity near Corpus Christi, Texas, that it could use to supply the EAF it plans to start up Calvert next year and Big River.

What might be obstacles to a deal like that? Remember that the United Steelworkers (USW) union could play a bigger role in any U.S. Steel sale than has been the case in past deals. Could that make it more difficult for ArcelorMittal to close on any potential deal? And, if it does, who might benefit?

Nucor and Big River Steel jousted in 2016 over an air permit for the Osceola, Ark., EAF sheet mill. Charlotte, N.C.-based Nucor – in addition to environmental concerns – probably wasn’t thrilled to have a competitor in its backyard. Note that Big River is ~30 miles from Nucor Steel Hickman, which also sits just across the Mississippi River from Memphis and less than 20 miles from Nucor-Yamato Steel in Blytheville, Ark..

It might make a lot of sense, especially on the raw materials side and logistics side, to have those three under one roof. Perhaps especially for the two sheet mills, which could use feedstock from Nucor’s DRI plant in Louisiana. Recall that Nucor typically uses its DRI plant in Louisiana to supply its mills on rivers and its DRI facility in Trinidad to supply those on along the coasts (Nucor Steel Berkeley, for example).

And let’s not forget that SDI didn’t rule out large acquisitions in sheet during its earnings call last month.

What About U.S. Steel’s Other Assets?

As SMU reported this week, SunCoke Energy said its deal with U.S. Steel remained on track. The deal is expected to see SunCoke acquire the blast furnaces at U.S. Steel’s Granite City Works in southern Illinois, halt steelmaking, and switch to making granulated pig iron in the second half of 2024.

The plan was to have Granite City’s furnaces, under SunCoke’s ownership, supply Big River with pig iron. So a couple of questions: (1) Doesn’t the deal going forward assume that the ‘B’ blast furnace at Granite City will restart? Note it was idled in September with the official reason being the UAW strike. And (2) would a non-U.S. Steel owner of Big River inherit the same supply agreement?

Let’s also not forget that U.S. Steel, unlike most of its competitors, has significant energy tubular operations. Who gets those? And speaking of energy tubulars, is anyone interested in acquiring Evraz North America? U.S. Steel has been for sale publicly since mid-August. Evraz NA has been for sale since August 2022.

So, to sum it up, I’d put my money on a joint bid for U.S. Steel, like we saw in 2014 when SDI and AK Steel bought Russian steelmaker Severstal’s US mills. I’d also be willing to wager on Cliffs buying all of U.S. Steel and then selling off certain assets – as we saw in 2007-08 when SSAB bought Ipsco, kept its plate mills, and then divided up its tubular assets among Russian steelmakers Evraz and TMK.

That speculation assumes that a deal happens. I’d be surprised, but not shocked if a deal doesn’t happen.

There Is a Precedent for That too

Former Big River Steel CEO David Stickler told me in November 2018 that the company, which had undertaken a sales process, would remain independent. It was eventually acquired by U.S. Steel in 2021. My point is there is no guarantee that a transaction will be announced in the same year a sales process is unveiled, especially if there are disagreements over valuations.

Let’s go one step further with that possibility. Let’s say we get to early December and there is no deal. What happens then? Could Cliffs bring pressure from the USW to bear? Might the company seek to muscle into a seat on U.S. Steel’s board?

Again, I have no inside source here. I’m looking back at domestic steel deals over the last 10-15 years for similarities. Lourenco Goncalves, now chairman, president and CEO of Cleveland-Cliffs, worked with Casablanca Capital, an activist fund, to oust the former management of the company in 2014. He succeeded.

And, by the way, who might get U.S. Steel Kosice? I have a hard time seeing that one making sense for another U.S. mill. Would it make sense for a European steelmaker – and, if so, which one?

There are a lot of scenarios that could play out. I hope we’ll gain some clarity over the next week or month. Let me know if you hear anything!

Tampa Steel Conference

Whatever happens with the U.S. Steel sales process, it will be a topic of conversation at the Tampa Steel Conference on Jan. 28-30, 2024.

Hotels tend to book up fast during the high season for tourism in Florida. Don’t miss out! Register here.

Michael Cowden

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