Final Thoughts
Final Thoughts
Written by Tim Triplett
October 16, 2020
Have you ever attended a wedding and thought to yourself as you looked at the lovely young bride and her much older groom: “How is this going to work?” The marriage of U.S. Steel and Big River Steel is raising some of the same doubts.
U.S. Steel announced today that is has exercised its option to acquire the remaining 50.1 percent stake in BRS for $774 million in cash. The move comes just a year after USS originally bought a 49.9 percent interest in BRS with a four-year option to buy the rest, thanks to a steel market that is booming, despite the pandemic, with hot rolled prices near $900 a ton.
U.S. Steel sees its future in combining the “best of both,” giving it the flexibility to produce the highest quality products through the integrated steelmaking process and the most cost-effective and green products through the electric arc furnace process–whichever best meets each customer’s needs.
Commented a couple of steel buyers to SMU: “The purchase of Big River by USS is significant since it combines an old-line integrated steelmaker with a cutting-edge EAF sheet producer. USS is much different than BRS, however. I honestly don’t think the two cultures fit. Something will have to give.”
“The big question for me is how commercial will be run after the sale. Both companies couldn’t be more different in how they go to market. I don’t think we will see any impactful change until late 2021,” said one buyer.
“It’s too early to know what impact the USS acquisition of BRS will have on the steel industry because there are too many variables in play right now,” commented a tubular exec, “including Cleveland-Cliffs’ acquisition of ArcelorMittal’s North American assets, COVID, supply/demand and the Biden administration on commerce and trade.”
Commented an exec from a large service center: “I don’t expect any short-term changes in how each business goes to market. But the market today is feeling the changing position of integrated production. The hot strip mills at Great Lakes and Dearborn represent almost 8 million tons of coil production capacity that’s out of the market. The combination with BRS will give USS an option to close the hot strip at Granite City, another 3.8 million tons of capacity. The decision to continue operating GC, or not, is the biggest potential market change.”
Added another source: “Cynical me says it might somehow kill off the creativity and spirit that BRS brought to the table, and that is not good. But I am hoping the BRS attitude is infectious and helps bring USS into the 21st century.”
May they live happily ever after.
It’s time to register for the Port of Tampa Steel Conference which is slated for Feb. 2, 2021. SMU has agreed to co-host the event, and John Packard has put together an impressive lineup of speakers. Look for more details on the conference elsewhere in this issue.
As always, your business is truly appreciated by all of us here at Steel Market Update.
Tim Triplett, Executive Editor
Tim Triplett
Read more from Tim TriplettLatest in Final Thoughts
Final thoughts
Whether it’s the twists and turns of the presidential election, the U.S. Steel deal, or just what’s happening with the movement of steel pricing, there has been no shortage of stories for us to cover.
Final thoughts
Cleveland-Cliffs is seeking $750 per short ton (st) for hot-rolled coil. That’s $20/st above where the steelmaker had been. It’s also $30/st above Nucor, which is at $720/st this week. We've seen prices increase incrementally this week. SMU's HR price, for example, stands at $690/st on average, up $5/st from last week. The questions now are whether a number well above $700/st will stick, whether other mills will follow Cliffs, and whether there is enough demand to support higher prices.
Final thoughts
We got a little flack for adjusting our sheet momentum indicators to neutral last week. To be clear, we didn’t adjust them to lower. Part of the reason we moved them to neutral was because there are some unusual cross-currents in the current market. On the news side, you could make a case that there should nowhere to go but up.
Final thoughts
I think all of us know that sometimes courtships go wrong. A misplaced word or deed and soon things can go sideways, and not in the prices sense. Such could be the case with Japanese steelmaker Nippon Steel’s play for U.S. Steel.
Final thoughts
We’re starting to see some impacts of the big trade case filed last week against imports of coated flat-rolled steel from 10 nations. Namely, we’ve heard that a range of traders have stopped offering material from Vietnam. An alleged dumping margin of nearly 160% will do that. Especially amid chatter of critical circumstances.