U.S. Steel sale is a monumental moment for the steel industry

The sale of U.S. Steel might result in the separation of its unionized steelmaking mills, home to blast furnaces, and nonunion electric arc furnace operations that today exist under the same corporate roof. sdlgzps/E+

I planned to write about what I usually do in this column: Steel Market Update’s latest price data on sheet prices, lead times, and service center inventories. But that plan changed when U.S. Steel announced on Aug. 13 that it was considering a sale of all or part of the company after receiving multiple unsolicited offers.

Any doubts about straying from sheet prices and lead times this month were removed when Cleveland-Cliffs said its offer for U.S. Steel had been rejected, and U.S. Steel shortly thereafter confirmed as much. Meanwhile, Cliffs remains undeterred and seeks to remain involved in the sales process.

The Cliffs offer was valued at more than $7 billion dollars. To give some idea of scale, that’s likely to be more than what Cliffs paid for AK Steel ($3 billion) and ArcelorMittal USA ($3.3 billion) in 2020 combined.

I would not be surprised if we see other bidders (other domestic mills, foreign steelmakers, or private equity) named in the months ahead. It will be fascinating to see how it all plays out.

A Shake-up in Steel

I’m from Pittsburgh. U.S. Steel and the Steel City have been synonymous for as long as I can remember. To be clear, that might remain the case. U.S. Steel has said it has no fixed timeline for reviewing the offers it has received. The company also has said that no sale is guaranteed.

But the possibility that U.S. Steel might fundamentally change its DNA is as hard for me to imagine as the Steelers playing in Cleveland.

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 in just a year acquire both AK Steel and ArcelorMittal USA, transforming itself almost overnight into one of the largest sheet producers in the U.S. and the largest sheet supplier to automotive. (Also, as family in Baltimore sometimes remind me, it was once inconceivable that the Colts would leave Baltimore.)

Consider the Possibilities

Surprising things can happen when you start a sales process. What are some of the possible outcomes that might emerge when the formal reviews get underway?

The one thing that comes to my mind is a potential separation of U.S. Steel’s union operations and Big River Steel, its nonunion electric arc furnace (EAF) sheet mill in Osceola, Ark., one of the crown jewels of the company.

Not long after I started covering steel (more than 15 years ago), 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.

Remember the nonbinding 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 still 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 6 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.

Additionally, let’s remember that U.S. 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 and Nonunion Entities 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 nonunion 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 nonunion mill.

The players might be different. But even about 10 years later, the underlying issues might not be. Could we see something similar happen at U.S. Steel, namely union and nonunion mills splitting off? Stranger things have happened.

In the meantime, get out the popcorn. This is going to be a good one.

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