The Nippon Steel proposed acquisition of U.S. Steel has the United Steelworkers Union (USW) worried that, eventually, integrated steel mills will be closed in favor of imports from Japan. Union leaders met with what may be their future bosses in a meeting about the deal in Pittsburgh on March 7, but said no progress was made to lower concerns about layoffs and product line shutdowns.
“The meeting yielded no progress and ended in less than one hour,” the union said. “Nippon has still not earned the trust of the USW, and we remain convinced that the company does not fully understand its obligations to USW, retirees and our communities.”
Their concerns are warranted. Allegheny Technologies Inc (ATI) closed two steel slab manufacturing plants in 2016, citing an influx of imports and oversupply from Asia. Around 550 people were laid off at two facilities.
ATI had been in a long-standing joint venture with a Chinese manufacturer, Baowu Special Metallurgy at the time. Baowu is part of the Boasteel Group, the largest steelmaker in the world.
Nippon also has a 50/50 JV with Baosteel in Shanghai to manufacture and sell cold rolled and hot-dip galvanized steel sheets for the automotive industry. Most of that is sold in China.
In Japan, Nippon’s recent closures of four integrated (basic oxygen furnace, or blast furnace) steel mills has the USW wondering if Nippon will likely reduce its steelmaking capacity here, too, in favor of imports or making specialty products such as non-grain oriented steel for use in EVs. U.S. Steel is a manufacturer of electrical steel. But they could make this from imported steel sheet rather than making that sheet themselves.
Nippon also said it plans on closing a blast furnace at its East Nippon Works facility in Kashima, Japan later this year.
Japan has nine JVs in China making specialty steel, and nine JVs here in the U.S. most of which rely upon imported steel.
USW said it doubts Nippon’s pledge not to lay off workers because Nippon executives have already backed stopping expansion at some other USW-represented facilities. Just before the announced deal, U.S. Steel said in Sept. it would indefinitely idle its blast furnace at its Granite City, IIl., citing the auto strike in the fall, and would shut down its finishing mill in California where some 700 people are employed. Auto was that facility’s number one market or steel. Nippon has not proposed keeping those in business and considering they are shutting blast furnace units in Japan, they could be exiting that mode of steel production and sticking with the lower cost electric arc furnaces (EAF) instead. Other than Illinois, U.S. Steel has blast furnace operations in Michigan, Indiana and Pennsylvania. Some of those mills are over 100 years old.
In a December 2023 investor call, Takahiro Mori, executive vice president and head of global business development for Nippon Steel, was asked if they would keep U.S. Steel’s expansion plans for its Arkansas-based EAF mini-mill, Big River 2. Mori said that “our plan is to follow U.S. Steel’s plan with that mill.” Part of that plan includes increasing production at the Big River 2 mill while reducing production elsewhere, likely at the blast furnaces up north. U.S. Steel bought those mills in Arkansas from Big River Steel in 2020. The company went from zero EAFs in its steelmaking arsenal to three of the newest and most advanced EAFs in North America with the Big River deal. Big River is non-union.
Nippon’s purchase of those facilities, plus the old basic oxygen furnace technology that relies on coal and iron ore, will give them domestic market share at the starting point of the steel supply chain – the steel slabs, blooms and billets that get turned in rolled steel coil, sheets, pipes, tubes and other items. This would be new for Nippon in the U.S.
U.S. Steel has a roughly 7% market share across the basic steel segments like hot and cold rolled steel.
Why the Nippon Steel Deal Has Steel Workers in a Panic
The Nippon Steel proposed acquisition of U.S. Steel has the United Steelworkers Union (USW) worried that, eventually, integrated steel mills will be closed in favor of imports from Japan. Union leaders met with what may be their future bosses in a meeting about the deal in Pittsburgh on March 7, but said no progress was made to lower concerns about layoffs and product line shutdowns.
“The meeting yielded no progress and ended in less than one hour,” the union said. “Nippon has still not earned the trust of the USW, and we remain convinced that the company does not fully understand its obligations to USW, retirees and our communities.”
Their concerns are warranted. Allegheny Technologies Inc (ATI) closed two steel slab manufacturing plants in 2016, citing an influx of imports and oversupply from Asia. Around 550 people were laid off at two facilities.
ATI had been in a long-standing joint venture with a Chinese manufacturer, Baowu Special Metallurgy at the time. Baowu is part of the Boasteel Group, the largest steelmaker in the world.
Nippon also has a 50/50 JV with Baosteel in Shanghai to manufacture and sell cold rolled and hot-dip galvanized steel sheets for the automotive industry. Most of that is sold in China.
In Japan, Nippon’s recent closures of four integrated (basic oxygen furnace, or blast furnace) steel mills has the USW wondering if Nippon will likely reduce its steelmaking capacity here, too, in favor of imports or making specialty products such as non-grain oriented steel for use in EVs. U.S. Steel is a manufacturer of electrical steel. But they could make this from imported steel sheet rather than making that sheet themselves.
Nippon also said it plans on closing a blast furnace at its East Nippon Works facility in Kashima, Japan later this year.
Japan has nine JVs in China making specialty steel, and nine JVs here in the U.S. most of which rely upon imported steel.
USW said it doubts Nippon’s pledge not to lay off workers because Nippon executives have already backed stopping expansion at some other USW-represented facilities. Just before the announced deal, U.S. Steel said in Sept. it would indefinitely idle its blast furnace at its Granite City, IIl., citing the auto strike in the fall, and would shut down its finishing mill in California where some 700 people are employed. Auto was that facility’s number one market or steel. Nippon has not proposed keeping those in business and considering they are shutting blast furnace units in Japan, they could be exiting that mode of steel production and sticking with the lower cost electric arc furnaces (EAF) instead. Other than Illinois, U.S. Steel has blast furnace operations in Michigan, Indiana and Pennsylvania. Some of those mills are over 100 years old.
In a December 2023 investor call, Takahiro Mori, executive vice president and head of global business development for Nippon Steel, was asked if they would keep U.S. Steel’s expansion plans for its Arkansas-based EAF mini-mill, Big River 2. Mori said that “our plan is to follow U.S. Steel’s plan with that mill.” Part of that plan includes increasing production at the Big River 2 mill while reducing production elsewhere, likely at the blast furnaces up north. U.S. Steel bought those mills in Arkansas from Big River Steel in 2020. The company went from zero EAFs in its steelmaking arsenal to three of the newest and most advanced EAFs in North America with the Big River deal. Big River is non-union.
Nippon’s purchase of those facilities, plus the old basic oxygen furnace technology that relies on coal and iron ore, will give them domestic market share at the starting point of the steel supply chain – the steel slabs, blooms and billets that get turned in rolled steel coil, sheets, pipes, tubes and other items. This would be new for Nippon in the U.S.
U.S. Steel has a roughly 7% market share across the basic steel segments like hot and cold rolled steel.
When it comes to global steel markets, Nippon Steel benefits from an undervalued Japanese yen. It has been accused of dumping steel into the U.S. dozens of times and hit with anti-dumping duties for numerous products. Its new EAF mill in Mexico, making galvanized steel for the automobile industry, will benefit from the weaker peso, too. Read about Nippon’s history of dumping going back ten years.
But USW said in a long note to the Senate recently that should Nippon divert its blast furnace steelmaking to its facilities abroad, U.S. Steel would be more reliant on melting scrap for use in their EAF mills. The problem there is that they will be competing for scrap that often gets soaked up by Chinese demand. Scrap metal is actually one of the top five exports to China in California and Hawaii. Should scrap be in short supply, there are scrap substitutes that can be used, however.
Steel Union Worries Nippon Will Close U.S. Steel’s Blast Furnace Mills
USW is clearly worried about the future of U.S. Steel’s blast furnace operations.
That’s because Nippon’s first offer was only to purchase U.S. Steel’s EAF mini-mills. This deal made no sense for U.S. Steel and they persuaded Nippon to bid for the full company. USW believes Nippon will not resuscitate the Granite City mill and may eventually exit the blast furnace mills in the future as the steel industry decarbonizes.
Three years ago, U.S. Steel, the third-largest producer of raw steel, canceled plans to modernize its Mon Valley Works blast furnace in western Pennsylvania due to permitting woes, and later drastically reduced production at its 100 year old blast furnace mill called Great Lakes Works outside of Detroit. No new U.S. blast furnaces are being built, and several have been idled in recent years and this is where the labor unions populate.
USW International President David McCall’s letter to the Senate on March 1 said the deal between U.S. Steel and Nippon had “national security” implications that “includes Nippon’s current export practices and its financial interests in China.”
Most imports of steel into the U.S. are coming from Canada, Mexico and the EU with Japan in a distant third. China steel floods the world markets and impacts prices, but imports of China steel are largely blocked by tariffs. China exports to the U.S in January 2024 were half that of January 2023, according to Census foreign trade statistics. (See page 6.)
Nippon has a joint venture in Mexico that makes galvanized steel for the auto industry. They invested $2.2 billion in 2023 in an EAF mill to produce 2.8 million tons of steel per year. U.S. Steel’s idled Granite City mill makes the same products with a blast furnace, and also has the capacity to produce 2.8 million tons per year. USW believes this mill will be moth-balled and will let the new buyer pull the plug on it.
The U.S. Steel deal decision rests with the Committee on Foreign Investment in the United States (CFIUS). It could take all spring before Nippon knows if its deal has been approved or not.
Domestic steel companies here, led by Nucor, Cleveland Cliffs and Steel Dynamics, have done well thanks to tariffs and quotas. Domestic content requirements in the Infrastructure Law have also helped. But U.S. Steel wants out of the market – perhaps because it wants to dump its blast furnaces – and Nippon wants in, even though those units were never part of their original offer. This is where the USW has a point: will Nippon shut those units down, ultimately weakening domestic steel production?
It is unclear if another buyer would keep those traditional mills operational. But if the other buyer was domestic, the chances of them offshoring raw steel making to their parent or JVs abroad are less likely. Most steel made here is consumed here.
Many Top Leaders Are Against This Deal
The domestic steel industry is quietly against this deal, as are some members of Congress, including Pennsylvania Sen. John Fetterman – U.S. Steel’s Senator. Sen. Marco Rubio (R-FL) agrees with the USW’s take that the deal is bad for national security.
For Senators like Sherrod Brown (D-OH), if U.S. Steel wants to sell, it is preferred they sell to a domestic company – and not one that has been charged with dumping steel onto the U.S. market going back at least to 2014.
U.S. Steel has a little over 20 million tons of steel making capacity. Over time, after the acquisition is complete, Nippon Steel could easily shut down production at U.S. based blast furnace facilities and turn to imports. They are making investments in Mexico in raw steel making, a move that will both facilitate the relocation of the U.S. auto industry south of the Rio Grande, and make for tariff and quota free shipment of steel products from Mexico into the U.S. This saves Nippon from making new investments here. And it removes them of U.S. union labor costs, something USW fears.
The Biden administration has continued with the Trump administration’s push for revitalizing American industry. Only Biden said he wanted to create more union jobs. The White House’s National Economic Council Director Lael Brainard said Nippon deal deserves “serious scrutiny.”
Japan helped build China’s steel industry and China has nothing to lose from this deal. China is basically absent from the domestic steel industry due to tariffs. But China’s overcapacity still harms U.S. workers and industry. Its glut flows into other countries like Canada, Mexico, and Europe, which then causes companies in those markets to ship much more steel products to the United States.
Moreover, a company called 72 Steel, started by Chinese-Americans and with some ties to China as its corporate website has a link to the Chinese Ministry of Information and Technology for registry of its internet service protocol, is looking to invest around $218 million in an EAF steel making mill in New York state.
The Chinese would undoubtedly be banned from acquiring U.S. Steel. Whether or not Japan should be allowed will be decided by CFIUS, with the risk of the White House overruling their decision.
“We cannot risk having foreign ownership of the remaining U.S. owned and operated mills,” said Bill Jones, a CPA board member and former chairman of Cummins American Corporation. “Steel is an essential input for about every critical U.S. industry. If steel production is offshored, we risk supply chain interruption for steel.”
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