The industry could soon absorb one of the most respected industrial names in the American economy.
US Steel (X) this week Show More
Although the US is decades past its heyday in the steel industry, the association between US Steel and Cleveland Cliffs will mark them As the only American company among the top 10 steelmakers in the world.
Domestically, the industry is expected to benefit from multi-year government spending initiatives on infrastructure, manufacturing and green energy developments through the Inflation Reduction Act passed last year.
“I would say the IRA got it wrong,” US Steel CEO David Porritt said during the company’s second-quarter earnings call. “It is the canon of the manufacturing renaissance. We applaud those who have made it happen, and look forward to the tailwind we believe will provide the steel industry for years to come.”
One industry analyst called the spending an “unprecedented perfect storm.”
“All of these things could spell a huge boon for the steel industry,” Evan Mann, senior high-yield analyst at Gimme credit Yahoo Finance.
“I think they’re setting themselves up for that. Industry rights. Get rid of inefficient capacity, so that when demand goes up, you guarantee that prices will be better and everyone in the industry will make more money,” he added.
organizational hurdles
Industry watchers also predict that the tie-up between two US steel giants is likely to come with regulatory hurdles.
The Cleveland-Cliffs acquisition of US Steel, for example, would make the combined company the sole provider of blast-furnace iron ore in the United States.
said Dale Crawford, executive director at the Steel Tube Institute, a nonprofit that represents manufacturers of steel tubes used in everything from warehouses to electrical infrastructures.
Another regulatory eyebrow raiser could come from the electrical steel market, with this material being used for electric vehicle parts such as motors and charging infrastructure.
Cleveland-Cliffs is the main producer of that material in the United States, and US Steel is working on a new line to provide the same product domestically.
“I am very confident in our ability to be not only a hit but a disruptor of the electric steel market in the United States,” Porritt said during the company’s recent earnings call. US Steel considers the electrical steel market to be one of the fastest growing with margin expansion potential.
“Here, again, you have a competitive move — that the other company is just trying to buy (US Steel) to get rid of them,” Spurz said. “This is going to have a very difficult time getting through antitrust investigations. Something may need to be liquidated, or a lot of things may need to be liquidated.”
“unreasonable” offer
Although other bidders have emerged, the two central players in the reshaping of the US steel industry — US Steel and Cleveland Cliffs — don’t seem particularly close to a framework for getting a deal done.
US Steel CEO Burritt called the Cleveland Cliffs bid “illogicalin a letter addressed to its CEO, Lourenco Gonclaves. However, Cleveland-Cleves is not walking away from the negotiating table.
The Cleveland Cliffs now have the industry union on their side, along with the United Steelworkers announced on Thursday The Cleveland-Cliffs are entitled to bid on their behalf because the acquisition requires USW support.
“We have no doubt that expanding our strong partnership with Cliffs to the 11,000 union-representing employees at USS will benefit employees, their families, and the communities in which they work,” USW President Thomas Conway wrote in a letter earlier this month. “A strong and productive American workforce is of paramount importance to our country.”
“With this exclusive waiver, Cliffs is the only realistic purchaser capable of obtaining total US Steel,” the company says he said in a statement on Thursday.
“I’m sure the offers are going to get a little more competitive, a little higher valuation before all is said and done,” Spurz said.
Ines Ferry is a Senior Business Correspondent at Yahoo Finance. Follow her on Twitter at @employee.
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