US Steel logo (©Getty via Kyodo)
A major reorganization of the steel industry in Japan and the United States is in motion. On December 18, Nippon Steel clinched a deal to acquire American steel giant US Steel Corporation. With this purchase, US Steel (USS) will become a wholly-owned subsidiary of the Japanese company. Both companies are proceeding with the necessary procedures to complete the acquisition by 2024.
Despite the agreement, the deal is still on precarious grounds. At approximately $14.1 billion USD (approximately ¥2 trillion JPY), there are concerns over the considerable cost of the acquisition. Furthermore, the purchase faces opposition from the United Steelworkers (USW) union.
Restoring Japan's Growth Potential
At an online press conference on December 19, Nippon Steel President Eiji Hashimoto explained the aim of acquiring US Steel. Hashimoto pointed out that the major trend in the world is new economic security. In this context, he said, "We want to complete our global network" to meet global needs. Establishing a strong foothold in the US is how Nippon Steel aims to achieve that goal. "In turn, we hope to restore Japan's growth potential," he added.
Nippon Steel has been working to expand its business in India's growing market. The company is also developing its presence in Southeast Asia to compete with China. With the addition of US Steel, Nippon Steel intends to strengthen its international competitiveness further.
"With a demand of nearly 100 million tons, the American steel market is the largest of any developed country," Hashimoto commented. He also indicated that he expects "Demand to increase in the future."
According to the World Steel Association, in 2022, Nippon Steel produced approximately 44 million tons of crude steel. Globally, Nippon Steel ranks fourth by company. US Steel, with about 14 million tons, is ranked 27th. By combining its output with US Steel's, Nippon Steel would become the world's third-largest steelmaker.
Further Synergy in Other Assets
US Steel also owns domestic iron ore mines and handles the entire process from raw materials to production. Unlike blast furnaces, which use coal, its electric arc furnaces have the advantage of reducing carbon dioxide (CO2) emissions during steel production by utilizing scrap.
The steelmaker has high technological capabilities in its value-added high-grade and electromagnetic steel sheets. Demand for these electromagnetic steel sheets will likely grow with the expansion of electric vehicles (EVs).
Along with hydrogen, electric furnaces are a pillar of CO2 countermeasures for steel production. With its purchase of US Steel, Nippon Steel will also accelerate its decarbonization efforts.
Hashimoto also noted that "The US is the leader in economic security." Meanwhile, competition with China for high-tech components is escalating. In this connection, Hashimoto emphasized the significance of Japan-US collaboration in technological development and strengthening raw material supply chains through acquisition.
Solid US Base for Economic Security
Nippon Steel's purchase represented a 40% premium to US Steel's share price on December 15. However, concerns about the financial burden of this transaction have affected Nippon Steel's share price. On the Tokyo Stock Exchange on December 19, its shares temporarily fell nearly 6% from the previous day's closing price.
USW, which counts US Steel employees among its members, also announced its opposition to the deal on December 18. The union urged US government regulators to review the acquisition carefully.
At the press conference, Hashimoto said he hoped to "win the (union's) understanding by continuing to engage in respectful dialogue." However, obtaining the approval of the general meeting of shareholders and the relevant national authorities remains a significant obstacle.
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(Read the report in Japanese.)
Author: Noboru Ikeda
