With a deal still in flux, the U.S. auto industry keeps pushing top government officials to allow the proposed acquisition of United States Steel Corp. by Japanese rival Nippon Steel Corp.
That push, analysts told The Detroit News, signals how much the global auto industry operating in the United States stands to benefit from another major player investing in the U.S. steel market — and from intensifying competition among producers of a widely used commodity to build cars, trucks and SUVs.
“It’s a big heavy steel-consuming industry,” said KeyBanc metals analyst Phil Gibbs of U.S. auto manufacturing, which he said uses about 20% of all domestic steel. “If Nippon gets their hands on more assets and has a focus on market share growth, the industry — in the automakers’ eyes — will be more competitive.”
Weighed down by presidential politics and the courtship of blue-collar voters, the deal nonetheless could prove a pivotal one for the U.S. auto industry. Just as a completed acquisition would likely be a boon for automakers looking to cut costs in their supply chains, its failure could tee up an alternative sale that Gibbs said would concentrate “monopolistic pricing power” within one American steel company.
U.S. Steel shareholders approved the sale to Nippon in April, but the deal must still get permission from Democratic President Joe Biden and members of his cabinet. Biden, who has long said he opposes the deal, likely will not make a final decision on the matter until after the November election, according to the Washington Post.
As the companies’ campaigns to win Biden’s approval continue, U.S. Steel CEO David Burritt is set to speak Tuesday at the Detroit Economic Club about the controversy surrounding the acquisition and the importance of steel in the auto industry — which has widely supported the trans-Pacific steel deal. Spokespersons for the Detroit automakers, however, declined comment.
That approval campaign has been in effect since at least December 2023, when the steel companies jointly announced their sale intentions and launched a website dedicated to publicly promoting its benefits. The effort has delivered mixed results.
Burritt recently told the Wall Street Journal that the $2.7 billion Nippon Steel has pledged to invest in the Pittsburgh company’s steelmaking assets is critical to keeping U.S. Steel competitive and preserving jobs: “We wouldn’t do that if the deal falls through,” he said. “I don’t have the money.”
The United Steelworkers union, meanwhile, has adamantly opposed the deal since it was first proposed in December 2023. “The way the transaction is structured, it doesn’t work for us in any meaning,” USW President David McCall told CNBC in a March interview.
‘Microeconomics 101’
Gibbs and Gerrit Reepmeyer, an automotive and industrial metals analyst with AlixPartners, explained why the auto industry has a clear rooting interest in the deal. “It’s really microeconomics 101,” Reepmeyer said.
Consumer vehicles, he told The News, tend to use between 1,300 and 2,000 pounds of steel. That costs automakers anywhere from $700 to $1,000 per vehicle, which has multibillion-dollar implications for an industry that produces between 16 million and 17 million vehicles annually, according to USA Facts.
But there is not a diverse domestic supply chain for the type of steel automakers prefer in vehicle manufacturing. Automakers, Reepmeyer said, favor steel produced using blast furnaces rather than electric arc furnaces. The blast furnace method produces steel with better surface finish quality, which automakers prefer for exposed steel vehicle parts.
That part of the steel business is not booming, though.
“In the U.S., almost two-thirds of steel comes from electric arc furnaces or mini-mills that use recycled scrap to make steel, and only about a third or so is blast furnace based,” Reepmeyer said. He noted that no new domestic blast furnaces have been built in decades as producers shift towards the more energy-efficient and cost-effective electric arc method.
Critically, U.S. Steel and Cleveland-Cliffs Inc. are the only major U.S. companies that continue to operate blast furnaces. With limited competition, that gives the two significant power in setting prices — a principal reason automakers fear a combination of the two likely would drive steel prices higher.
“Lourenco at Cliffs, for example, has been very, very forceful about the pricing terms that he wants to dictate to the automakers. They’ve basically been at his whim for the last two or three years,” said Gibbs, the KeyBanc analyst, referencing Cleveland-Cliffs CEO Lourenco Goncalves.
Cleveland-Cliffs made its own bid to acquire U.S. Steel last year and become the sole blast furnace operator in the country. Automakers roundly opposed the move, telling the White House that it would boost the steelmaker’s already unfair pricing power.
If no deal gets done with either company, Gibbs said he expects U.S. Steel to continue its profitable automotive steel business but not grow it through capital investments.
“They’re basically acting as if they’re financially impoverished, but the reality is that they’re not. They just don’t want to invest in their union assets,” the analyst said, explaining that most of U.S. Steel’s auto-oriented production occurs at unionized facilities.
Nippon Steel, for its part, has promised to invest in blast furnace production as part of a potential U.S. Steel purchase. The analysts said those investments — and the resulting increase in domestic auto-grade steel supply — would likely bring down costs for automakers.
Thorny presidential, labor politics
The United Steelworkers union, unmoved by promises of investment, maintains its opposition to the Nippon Steel deal.
High-level Democrats and Republicans have done the same as they try to win over crucial blue-collar workers ahead of a November general election that could be decided by a few thousand votes in such key places as steel-minded, union-heavy western Pennsylvania.
Democratic President Joe Biden, who often calls himself the most pro-union president in U.S. history, has strongly opposed the deal. Democratic presidential nominee Kamala Harris and Republican nominee Donald Trump each have signaled their opposition, too.
Western Pennsylvania — with the exception of Pittsburgh — has become a “stronghold” for Trump, according to Daniel Mallinson, a politics professor at Penn State Harrisburg. But Harris has made a concerted push to sway voters with ties to the unions and the steel industry, much as she has tried in Michigan with auto workers. Mallinson noted that Harris made a campaign stop in Pittsburgh on Labor Day, hours after visiting Detroit.
The political calculus surrounding the deal, especially following a Sept. 4 report from the Washington Post that Biden imminently planned to block the U.S. Steel-Nippon Steel deal, has been not lost on the auto industry.
Two of the top automotive lobbying groups in Washington signed a letter to top Biden administration officials last week urging them not to let “political pressure” influence its evaluation of the deal. The Alliance for Automotive Innovation — the leading trade group for major U.S. automakers except for Tesla, Inc. — signed the letter, as did Autos Drive America, which represents the U.S. operations of international motor vehicle manufacturers.
The top lobbying group for automotive parts suppliers — MEMA Original Equipment Suppliers — shared a similar message with The News. MEMA President Collin Shaw said suppliers’ main concern is ensuring there’s a “steady supply of steel.”
“They don’t want any disruptions,” he said, explaining that suppliers cannot deal with disruption because of the “just-in-time nature of automotive.” Shaw added that “when things become politicized like this, it does have other knock-on effects that could be detrimental.”
That’s especially true in the auto industry, which has strong ties to Japan, he said:“Japan is one of our most important and closest allies, and if you look at the work that some of our Japanese OEMs have done in the United States, they’ve become very local.
“So I think in the auto industry, and just in general, that’s a concern that when things like this become politicized, especially with a very close ally, it could have other knock-on effects in the future.”
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