Steel Mills

CRU: Big River is a Big Deal for U.S. Steel

October 6, 2019

By CRU Principal Analyst Josh Spoores and Analyst Ryan Smith

U.S. Steel has announced a 49.9 percent stock acquisition with an option to acquire the remaining 51.1 percent within the next four years, in smaller rival U.S. flat products new entrant Big River Steel. In its announcement, U.S. Steel labelled this acquisition, alongside its investment in Mon Valley and Gary Works, as the third of its market-leading, differentiated and technologically advanced North American assets. They also noted they are looking for ways to extract incremental value from their iron ore pellet assets.

U.S. Steel/Big River Tie Up Makes Strategic Sense

Analysts agree that this deal makes strategic sense and we see this partnership as beneficial to U.S. Steel, subject to some risks. One risk is financial; U.S. Steel is increasing debt at a time when steelmaking capacity is increasing and demand growth is limited. Ultimately, success will lie in Big River Steel’s ability to maintain its low fixed cost operating model, high productivity and high profitability under the new ownership structure. With new EAF-based flat rolled production being built in Arkansas, Kentucky, Ohio and Texas, we foresee a rush for talented operators. The team at Big River Steel—often recruited from other steelmakers—joined with a promise of being “rebels” or market disrupters in a highly entrepreneurial enterprise. We expect the new owners will want to ensure the advantages of such a team and philosophy persist as part of the value they have bought into.

For the full analysis on the U.S. Steel/Big River Steel deal, click here.