US Steel, a 122-year-old industrial icon, is now an acquisition target in the China-dominated business world.

US Steel, a 122-year-old industrial icon, is now an acquisition target in the China-dominated business world.

The Potential Reshaping of Global Steelmaking: U.S. Steel’s Acquisition Journey

Steel industry giants are engaged in a fierce bidding war, as U.S. Steel considers its next move after rejecting a $7.3 billion buyout proposal from rival Cleveland-Cliffs. Industrial conglomerate Esmark then entered the scene with an offer of $7.8 billion for the Pittsburgh-based steelmaker. This intense competition has sent U.S. Steel’s shares soaring by over 30%, with the likelihood of even higher bids for the century-old company. While U.S. Steel did not provide a specific timeline for a decision on selling itself, they revealed that they have other offers to consider.

Creating a Potential Steelmaking Giant

Cleveland-Cliffs believes that a merger with U.S. Steel would result in a company that ranks among the top 10 steelmakers globally and among the top four outside of China, which currently dominates global steel production. The CEO of Cleveland-Cliffs, Lourenco Goncalves, envisions the merger as a means to create a lower-cost, more innovative, and stronger domestic supplier for customers. Despite the rejection of its initial offer, Cleveland-Cliffs remains willing to pursue talks with U.S. Steel.

As the largest producer of flat-rolled steel and iron in North America, Cleveland-Cliffs is eyeing further consolidation in the U.S. steelmaking industry. Acquiring U.S. Steel would lead to even fewer players in the industry, having experienced significant consolidation in recent years. If the acquisition goes through, Cleveland-Cliffs would gain control of about 50% of the domestic flat steel market, 100% of blast furnace production, and close to a domestic monopoly on auto body sheet steel and U.S. iron ore. Naturally, the potential acquisition would draw attention from antitrust regulators and possibly face resistance from automakers and other major steel buyers concerned about shrinking competition.

Consolidation Amid Soaring Steel Prices

The steel industry has witnessed consolidation in recent years as a result of rising prices. Near the onset of the pandemic, prices surged, multiplying more than fourfold to around $2,000 per metric ton by the summer of 2021, driven by supply chain disruptions and the unexpected surge in demand. Cleveland-Cliffs took advantage of this trend by acquiring AK Steel in 2019 and ArcelorMittal USA in 2020 for $1.4 billion. U.S. Steel also joined the consolidation wave by acquiring Big River Steel the following year.

Although prices have settled around $800 per metric ton, which is relatively high compared to the past six years, a resurgent U.S. economy has helped sustain prices for flat-rolled steel. This economic rebound, especially in the United States, has ensured demand at the higher end of the spectrum.

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U.S. Steel’s Illustrious Past

Founded in 1901 by J.P. Morgan, Andrew Carnegie, and others, U.S. Steel has stood as a symbol of industrialization and played a crucial role in the global steel industry for many years. The company survived the Great Depression and became an integral supplier during World Wars I and II, providing steel for planes, ships, tanks, and other military equipment, as well as for automobiles and appliances.

During the late 1970s and early 1980s, amid energy crises and recessions, U.S. Steel made significant production cuts and spun off many of its non-steel businesses. Facing challenges caused by oversupply and competition from lower-priced steel imports, the company reorganized in 2001 and separated its energy business, which eventually became Marathon Oil Corp. Although U.S. Steel Tower remains a prominent landmark in the Pittsburgh skyline, UPMC, a local health system, has surpassed U.S. Steel as its primary tenant.

China’s Dominance in Global Steel Production

Currently, China and Chinese companies dominate global steel production, accounting for approximately 54% of the nearly 2 billion tons of steel produced annually worldwide, according to the World Steel Association. China’s state-owned iron company, Baowu Group, alone produced nearly 120 million metric tons of steel in 2021.

Comparatively, Cleveland-Cliffs and U.S. Steel combined produced around 33 metric tons of steel that same year. Although the merger between Cleveland-Cliffs and U.S. Steel would elevate them to become one of the top 10 steelmakers globally, it would not significantly affect the position of U.S. steelmaking as a whole. Currently, the United States ranks as the fourth-largest steel producer globally, behind China, India, and Japan.

The potential acquisition of U.S. Steel by Cleveland-Cliffs holds the promise of reshaping the steelmaking industry worldwide. As the bidding war continues and the fate of U.S. Steel hangs in the balance, the decisions made by these industry giants will undoubtedly have far-reaching implications for competition, steel prices, and the structure of the global steel production landscape.