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US Steel’s sale could be good for American manufacturing, analyst says

The $14.9 billion sale of iconic steelmaker US Steel (X) to Japan’s Nippon Steel ends months of speculation over industry consolidation in a move criticized by union workers, but seen by one analyst as a win for US manufacturing.

Nippon Steel, which already owns and operates assets in the US, announced on Monday it will buy the 122-year-old steelmaker for $55.00 per share. US Steel’s stock jumped as much as 28% after the announcement.

The price is notably higher than the $35 per share offered by Cleveland-Cliffs (CLF) in August in a bid that was rejected and made public by US Steel.

“The valuation, to me, it’s the high end but it doesn’t look excessive,” Josh Spoores, steel analyst at CRU Group, told Yahoo Finance.

Nippon Steel says it will honor all agreements between US Steel and the United Steelworkers Union (USW). However the union, which supported the Cleveland-Cliffs bid, isn’t happy about the deal.

“To say we’re disappointed in the announced deal between U.S. Steel and Nippon is an understatement,” reads the USW’s statement. “We remained open throughout this process to working with U.S. Steel to keep this iconic American company domestically owned and operated, but instead it chose to push aside the concerns of its dedicated workforce and sell to a foreign-owned company.”

However, Spoores says the deal is poised to keep the steel market more competitive domestically at a time when the US is making efforts to bring more manufacturing to North America.

“I think this is a win for steel buyers,” said the analyst.

This is a portion of US Steel's Edgar Thomson Plant in Braddock, Pa., on Monday, Dec. 18, 2023. U.S. Steel, the Pittsburgh steel producer that played a key role in the nation's industrialization, is being acquired by Nippon Steel. (AP Photo/Gene J. Puskar)

US Steel, the Pittsburgh steel producer that played a key role in the nation’s industrialization, is being acquired by Nippon Steel. (Gene J. Puskar/AP Photo) (ASSOCIATED PRESS)

“As long as we have a competitive market for steel in the United States, that helps to keep our manufacturing industry incentivized to stay here and produce more in the United States with more US workers,” he added.

The analyst says industry consolidation in the US has led to higher steel prices for domestic buyers, fueling a continued trend of off-shoring manufacturing to places like China and other markets. This spurs an increase in steel imports that have already been processed into the format needed for final assembly.

“If another [US-based] steelmaker would have bought out US Steel, and it was just consolidation within the market, I think it would have led to higher prices and eventually more off-shoring of manufacturing and the import of steel-intensive goods,” said Spoores.

“I think re-shoring really would’ve been at risk if we had higher steel prices in the United States,” he added. “I do see this as a win for manufacturing in the US and North America as a whole.”

Monday’s announcement ends months of buyout speculation over which company would buy US Steel after Cleveland-Cliffs’ offer was rejected. Reports of other interested parties included privately held Esmark and European giant ArcelorMittal (MT), a deal which would have marked the latter’s reentry to the US market after the company sold its US assets to Cleveland-Cliffs in 2020.

The bids came as steel prices came down almost 45% off their pandemic highs in September 2021. A rise in prices during the early stages of the pandemic helped the company turn itself around, making it a more attractive acquisition target.

“Without the pandemic [US Steel] may actually have gone bankrupt,” said Spoores of CPU Group.

“US Steel has done a great job in engineering a turnaround to their company,” added the analyst, referring to investments like the purchase of Arkansas-based Big River Steel in recent years, which helped the company increase production capacity.

Domestically, the steel industry is expected to benefit from the government’s multiyear spending initiatives on infrastructure, manufacturing, and green energy developments through the Inflation Reduction Act passed last year.

“I’d say the IRA is misnamed,” US Steel CEO David Burritt said during the company’s second quarter earnings call earlier this year. “It’s a Manufacturing Renaissance Act. We applaud those that made it happen, and we look forward to the tailwinds we believe it will provide for the steel industry for years to come.”

Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.

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