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Aaron Brown: With merger on the ropes, the fate of U.S. Steel will shape the future of the Iron Range
We need more investment in iron ore plants across the region, and we must reject single-company rule of the Mesabi.
The Minnesota Star Tribune
September 24, 2024 at 10:26PM
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Behold mighty shovels as they claw bloodstone into lumbering haul trucks. Watch the iron ore train trundle south, mounds of dark gray pellets steaming from each stout car. See bubbling vats of molten metal feed Rust Belt smoke stacks that reach for red skies like dragon fingers.
These images of industrial America — steel! — occupy our national imagination. They hearken back to times of growth and plenty, and fuel economic nostalgia we can’t seem to quit. There’s just one problem.
It’s all falling apart.
Decades of neglect in American steelmaking infrastructure tipped U.S. Steel, once the biggest corporation in the world, into decline. And as most of the world adopted more efficient electric arc furnace technology, U.S. Steel remained wedded to massive, energy-intensive blast furnaces.
After the production blitz of World War II and the postwar buildup, U.S. Steel lost ground to foreign and domestic competition. In “The Godfather Part II,” a 1960s mobster jokes that the mafia had grown “bigger than U.S. Steel.” These days, Dollar General ($18.7 billion) and Texas Roadhouse ($11.7 billion) hold higher market capitalizations than U.S. Steel ($8.5 billion).
Today, the fate of U.S. Steel — which employs more than 1,800 Minnesotans — seems less certain than ever. Until last week, it appeared President Joe Biden would soon block the company’s proposed merger with Nippon Steel of Japan. Now a decision has been pushed until after the Nov. 5 election. Nevertheless, the deal still faces widespread opposition from the United Steelworkers of America and politicians of both parties, including presidential candidates Kamala Harris and Donald Trump.
Generally, opposition centers on the risks of a foreign company owning a large part of America’s steelmaking capacity. What if Nippon declares bankruptcy and starves working families, communities and pension plans? What about national security? Some critics blast Nippon’s labor and trade history.
Most Iron Rangers I’ve talked to oppose the deal for these reasons. However, we can’t assume that rejecting the deal will restore the status quo. U.S. Steel might not be viable anymore without a new owner and fresh cash.
U.S. Steel is no longer the biggest steelmaker in the world, or even in the United States. Sensing weakness — and opportunity — rival Cleveland-Cliffs pushed a public buyout offer last year. The Steelworkers wholeheartedly backed it. The result, however, wasn’t what Cliffs or the union wanted. U.S. Steel took a deal with Nippon instead.
In late August, Nippon Steel sweetened its $14.9 billion offer to buy U.S. Steel. In addition to the asking price, the Japanese steelmaker committed to investing $1.3 billion into upgrades to steel mills in Pennsylvania and Indiana. This is in addition to $1.4 billion in new investment promised as part of the acquisition.
Two and a half billion dollars in meaningful capital investment is something the steel industry — and U.S. Steel in particular ― has needed for a long time. Last year, investments like this helped upgrade U.S. Steel’s Keewatin Taconite, or Keetac, from an endangered facility to one providing value-added iron ore to new markets.
As the Nippon deal’s prospects soured in mid-September, U.S. Steel turned to threats. The failure of the merger would cause layoffs and plant closures, officials said, perhaps even a relocation of company headquarters from Pittsburgh to Arkansas. Meantime, Cleveland-Cliffs sharpens its knives, hungry for a second chance to devour U.S. Steel.
For his part, Cliffs CEO Lourenco Goncalves vows to invest in U.S. Steel properties if he gains control of them. Cliffs expanded its market share with massive technological upgrades in the 10 years since a hostile takeover put Goncalves in charge of the company. But he’s not sharing specifics yet, nor is it clear who would provide the billions in credit needed for Cliffs to perform the largest American steel transaction of this century.
Killing the Nippon deal might have unintended negative consequences, even if Cliffs steps in to buy U.S. Steel. Cliffs could become the only fully integrated steelmaker in America, and we have no idea what would happen after that.
The future of the Iron Range wraps around the fate of U.S. Steel, Cleveland-Cliffs and the imperative to develop value-added iron ore products. On these matters, the Iron Range finds itself divided not by partisan politics, but by company loyalties and job prospects.
The Range must set goals that serve our interests. We need investment in iron ore plants across the region, particularly at U.S. Steel’s Minntac facility, still the state’s largest iron mine. This investment must add value to our iron ore products, tying them to new, cleaner technology, or else we will forever be tied to the hospice ward of American blast furnaces.
Finally, we must reject single-company control of the Mesabi. U.S. Steel proved a century ago that too much power in the hands of one corporation suppresses innovation and raises the risk of economic collapse.
The Iron Range doesn’t just need jobs today, it needs jobs tomorrow. For this, we must look to value-added iron ore and more advanced products and services. Active competition and economic diversity best serve our communities.
Here are three projects in northeastern Minnesota that could pave the way to a brighter future. And they don’t have anything to do with copper-nickel mining.
