Although US Steel, a symbol of the US Industrial Revolution, rejected Cleveland-Cliffs' acquisition proposal last weekend, the market is worried that if US Steel is acquired, it will shake the foundation of US manufacturing industry, especially increase the market concentration of steel needed for cars, food cans and electric vehicle batteries.
Analysts say that due to the iteration of US transportation and energy infrastructure, large manufacturing plants and increased spending in the electric vehicle industry, the demand for steel in the United States will continue to increase in the next few years.
US steel production has been concentrated in four major suppliers-US Steel, Cleveland-Cliffs, Nucor Steel, and Steel Dynamics. Cleveland-Cliffs is the largest steel plate producer in the United States, and US Steel is the second largest. Some downstream manufacturers said that US steel is already the most expensive in the world, and further integration of the steel industry will give producers more leverage to raise prices, thereby putting more pressure on downstream industries.
Some furniture companies said that the current US steel market is already very concentrated, and it is difficult for companies to obtain much cheaper foreign steel.
Cleveland-Cliffs CEO Lourenco Goncalves said the new company will be a lower-cost, more innovative steel supplier to downstream manufacturing companies.
Cleveland-Cliffs said Sunday it made an offer to acquire Pittsburgh-based U.S. Steel for $35 per share in cash and stock, but U.S. Steel rejected the offer, calling it "unreasonable."
In a letter to Cleveland-Cliffs CEO Lourenco Goncalves released Sunday, U.S. Steel CEO David Burritt said:
At this time, we are unable to determine whether your unsolicited acquisition proposal correctly reflects the full and fair value of our company. For the reasons stated above, our board of directors has no choice but to reject your unreasonable acquisition proposal.
Acquiring U.S. Steel would make Cleveland-Cliffs the largest steel company in North America, with annual production of nearly 26 million tons and sales of nearly $40 billion. According to the offer materials submitted by Cleveland-Cliffs to US Steel, if the merger is successful, Nucor Steel, currently the largest domestic steel manufacturer in the United States, will fall to second place with an output of 18 million tons.
Analysts said that if the merger is successful, the steel produced by the new company will reach more than 50% of the steel consumed in the United States each year.
Cleveland-Cliffs' potential merger in the automotive steel market may become the focus of downstream companies and antitrust regulators.
Cleveland-Cliffs is already the largest supplier of automotive steel sheets in the United States. The automotive industry is also the largest customer of US Steel, accounting for more than 20% of its sales last year.
Most of the steel produced by US Steel and Cleveland-Cliffs is produced from iron ore melted in blast furnaces. This is a production process that produces high-quality steel sheets for automotive fenders, hoods and other exterior parts of vehicles. If Cleveland-Cliffs acquires US Steel, it will become the only steel company in the United States that uses blast furnaces. As a result, Cleveland-Cliffs will also become the only domestic supplier of tinplate for food cans.
In addition, if the two parties merge, the new company will become the only iron ore supplier in the United States and will control the iron ore supply in the United States.
