Nippon courts union with big capex promises for Mon Valley, Gary Works

“Nippon Steel believes that a transformed Mon Valley Works will expand U.S. Steel’s ability to serve a broader range of markets and customers, create additional high-grade steel capabilities, strengthen the competitive positioning of Mon Valley’s blast furnace operations, and secure American steel supply,” it said in a statement.

Additionally, the Tokyo-based company said it will revamp blast furnace #14 at the USS Gary Works in northwest Indiana. The $300-million investment will extend the facility’s operational life by 20 years, Nippon said. That furnace has a daily ironmaking capacity of 7,450 short tons, according to SMU’s Blast Furnace Status chart.

Nippon also said it sees “numerous opportunities for technology transfer to U.S. Steel following the closing of the transaction to reduce environmental footprint and extend the longevity of the USW-represented facilities.”

It noted that these investments are conditional on the deal’s closing and regulatory approvals. Further engineering studies will determine the design and specifications of those investments.

“The investments will require significant expenditures beyond calendar year 2026 and are incremental to” the previously announced $1.4-billion capital commitment for maintenance and capex projects at union-represented facilities, Nippon said.

USW responds

The investment promises are assumed to be a part of Nippon’s courting of the United Steelworkers (USW) union, which has so far been unsupportive of the transaction.

If you recall, in 2019, U.S. Steel announced a $1.2-billion investment project for its Mon Valley plant. It announced a few months later it was acquiring a stake in Big River Steel. Then, in 2021, it upset USW leaders and members with the surprise announcement it was canceling the Mon Valley investment. Again, just a few months later, USS then announced it would invest $3 billion to build a new EAF steel mill.

So, having already been burned by USS investment promises, the union was quick to respond to Wednesday’s announcement. It said Nippon was only paying lip service to its concerns while avoiding actual input from union leaders and members.

“Nippon talks a big game, but at the end of the day, a press release is not a contract,” USW said in a message to members.

It reminded members that U.S. Steel, under David Burritt’s leadership, broke its previous commitment to invest at Mon Valley and chose instead to buy Big River Steel.

“We can’t trust in what USS and Nippon are telling us,” the USW stated.

Comments from Steel Summit

Timna Tanners, managing director of Wolfe Research, said this week that the union’s opposition to the deal makes “perfect sense” right now.

“This is hardline negotiation tactics,” she said onstage at the 2024 SMU Steel Summit in Atlanta. “They need to exercise their play into the election and get the most maximum possible benefits out of Nippon.”

The tactics are “aggressive,” but the union seems to already be softening its position, she noted. She believes opposition to the deal just doesn’t make sense beyond November.

After Biden and Trump came out with comments against the merger earlier this year, Tanners put the deal’s probability of closing at less than 50%. However, she raised the probability after Harris became the Democratic candidate, noting that the presidential contender still has not taken a position on the USS/Nippon deal.

Wolfe Research’s “view is that it’s more likely than not to close. So we put a greater than 50% probability,” Tanners said on Monday.