USA: Cleveland-Cliffs - US Steel merger promises national security through consolidation

A proposed merger deal last week would combine two US steel giants, with the potential to create an American champion in an era of Chinese dominance, according to the Financial Times.

Cleveland-Cliffs, which owns a mill at Indiana Harbor, has offered to buy United States Steel, which operates its largest works nearby in Gary, Indiana. Its $10bn cash-and-stock offer, including assumed debt, was matched a day later by an all-cash offer from smaller rival Esmark.

Any takeover would further consolidate a US industry now reduced to four main companies: Cleveland-Cliffs, Nucor, Steel Dynamics, and US Steel. US production of steel totalled 80.5mn tonnes last year, compared with 1bn tonnes from China, according to the World Steel Association. Domestic steel prices have improved since former President Donald Trump imposed tariffs on imports and demand increased from the car industry.

Under chief executive Lourenco Goncalves, Cleveland-Cliffs has already expanded, acquiring AK Steel and ArcelorMittal's US operations in 2020 for $6bn in total.

Cleveland-Cliffs was founded in 1847 to mine iron ore in the Great Lakes region. By the time the 21st century arrived, costs were too high to export ore profitably to China, forcing the company to vertically integrate. It then bought the US steel mills of ArcelorMittal and AK Steel, its two big customers.

"They've been incredibly aggressive", said Fitch Ratings analyst William Van Meerbeke, mentioning: "Their industry was dying. There would be no growth ever without the acquisitions".

Cleveland-Cliffs said in a presentation to investors that acquiring US Steel would create "a stronger foundation for critical infrastructure and national security, along with accelerated job creation", noting that the combined company would be the only American steel company among the world's top 10 producers.

The Ohio-based steelmaker's bid is backed by the United Steelworkers union. Thomas Conway, USW president, said in an August 13 letter to members that "Cliffs did not cut union jobs" after buying AK Steel and ArcelorMittal USA and that the 11,000 unionised workers at US Steel would benefit from its ownership.

• US Steel is reviewing its strategic alternatives

US Steel announced on Sunday that it had launched a review of strategic alternatives after receiving "multiple unsolicited proposals" from prospective bidders. It publicly rejected the Cleveland-Cliffs bid, but serious negotiations are under way between the two companies, said a person involved in the review process.

Privately held industrial and steel group Esmark made its $10bn all-cash offer on Tuesday.

Esmark chief executive James Bouchard told the Financial Times that he had spoken recently to US Steel, after making two previous offers privately, and insisted there was no financing contingency with his bid. He said an acquisition of US by Esmark would "clean up the American steel supply chain", while questioning the benefits that would result from a deal between Cleveland-Cliffs and US Steel.

"If you merge a dinosaur with a dinosaur, you are going to get a dinosaur," he said.

• US imposes tariffs on some steel imports from Canada, China and Germany

The US will impose preliminary tariffs on sheet steel imports from Canada, Germany and China, the US Commerce Department announced on August 17, according to Reuters.

Washington authorities will propose preliminary anti-dumping duties of 122.5% on packaging steel imported from China, 7.02% on imports from Germany and 5.29% on those from Canada.

No additional customs tariffs will be imposed on the steel used for food cans and other containers imported from Great Britain, the Netherlands, South Korea, Taiwan and Turkey, stated the Department of Commerce, notes Agerpres.

In February, the American steel producer Cleveland-Cliffs sent a petition to the authorities, drawing attention to the low prices on the steel sheet market practiced by foreign firms, which in recent years caused the closure of some production facilities in the US.

In June, the U.S. Commerce Department announced preliminary tariffs of 543 percent on imports of packaging steel from Baoshan Iron & Steel Co., China's largest producer, and 89 percent on imports from other Chinese producers.