by Guest » September 19, 2024, 11:57 am
There was an interesting article in the Detroit News a couple of days ago about why the auto industry is pushing for the sale to Nippon. A few quotes from the article:
"It's a big heavy steel-consuming industry," said KeyBanc metals analyst Phil Gibbs of U.S. auto manufacturing, which he said uses about 20% of all domestic steel. "If Nippon gets their hands on more assets and has a focus on market share growth, the industry — in the automakers' eyes — will be more competitive."
Just as a completed acquisition would likely be a boon for automakers looking to cut costs in their supply chains, its failure could tee up an alternative sale that Gibbs said would concentrate "monopolistic pricing power" within one American steel company.
Consumer vehicles, he told The News, tend to use between 1,300 and 2,000 pounds of steel. That costs automakers anywhere from $700 to $1,000 per vehicle, which has multibillion-dollar implications for an industry that produces between 16 million and 17 million vehicles annually, according to USA Facts.
But there is not a diverse domestic supply chain for the type of steel automakers prefer in vehicle manufacturing. Automakers, Reepmeyer said, favor steel produced using blast furnaces rather than electric arc furnaces. The blast furnace method produces steel with better surface finish quality, which automakers prefer for exposed steel vehicle parts.
That part of the steel business is not booming, though.
"In the U.S., almost two-thirds of steel comes from electric arc furnaces or mini-mills that use recycled scrap to make steel, and only about a third or so is blast furnace based," Reepmeyer said. He noted that no new domestic blast furnaces have been built in decades as producers shift towards the more energy-efficient and cost-effective electric arc method.
Critically, U.S. Steel and Cleveland-Cliffs Inc. are the only major U.S. companies that continue to operate blast furnaces. With limited competition, that gives the two significant power in setting prices — a principal reason automakers fear a combination of the two likely would drive steel prices higher.
"Lourenco at Cliffs, for example, has been very, very forceful about the pricing terms that he wants to dictate to the automakers. They've basically been at his whim for the last two or three years," said Gibbs, the KeyBanc analyst, referencing Cleveland-Cliffs CEO Lourenco Goncalves.
If no deal gets done with either company, Gibbs said he expects U.S. Steel to continue its profitable automotive steel business but not grow it through capital investments.
"They're basically acting as if they're financially impoverished, but the reality is that they're not. They just don't want to invest in their union assets," the analyst said, explaining that most of U.S. Steel's auto-oriented production occurs at unionized facilities.
Nippon Steel, for its part, has promised to invest in blast furnace production as part of a potential U.S. Steel purchase. The analysts said those investments — and the resulting increase in domestic auto-grade steel supply — would likely bring down costs for automakers.
There was an interesting article in the Detroit News a couple of days ago about why the auto industry is pushing for the sale to Nippon. A few quotes from the article:
[quote]"It's a big heavy steel-consuming industry," said KeyBanc metals analyst Phil Gibbs of U.S. auto manufacturing, which he said uses about 20% of all domestic steel. "If Nippon gets their hands on more assets and has a focus on market share growth, the industry — in the automakers' eyes — will be more competitive."
Just as a completed acquisition would likely be a boon for automakers looking to cut costs in their supply chains, its failure could tee up an alternative sale that Gibbs said would concentrate "monopolistic pricing power" within one American steel company.
Consumer vehicles, he told The News, tend to use between 1,300 and 2,000 pounds of steel. That costs automakers anywhere from $700 to $1,000 per vehicle, which has multibillion-dollar implications for an industry that produces between 16 million and 17 million vehicles annually, according to USA Facts.
But there is not a diverse domestic supply chain for the type of steel automakers prefer in vehicle manufacturing. Automakers, Reepmeyer said, favor steel produced using blast furnaces rather than electric arc furnaces. The blast furnace method produces steel with better surface finish quality, which automakers prefer for exposed steel vehicle parts.
That part of the steel business is not booming, though.
"In the U.S., almost two-thirds of steel comes from electric arc furnaces or mini-mills that use recycled scrap to make steel, and only about a third or so is blast furnace based," Reepmeyer said. He noted that no new domestic blast furnaces have been built in decades as producers shift towards the more energy-efficient and cost-effective electric arc method.
Critically, U.S. Steel and Cleveland-Cliffs Inc. are the only major U.S. companies that continue to operate blast furnaces. With limited competition, that gives the two significant power in setting prices — a principal reason automakers fear a combination of the two likely would drive steel prices higher.
"Lourenco at Cliffs, for example, has been very, very forceful about the pricing terms that he wants to dictate to the automakers. They've basically been at his whim for the last two or three years," said Gibbs, the KeyBanc analyst, referencing Cleveland-Cliffs CEO Lourenco Goncalves.
If no deal gets done with either company, Gibbs said he expects U.S. Steel to continue its profitable automotive steel business but not grow it through capital investments.
"They're basically acting as if they're financially impoverished, but the reality is that they're not. They just don't want to invest in their union assets," the analyst said, explaining that most of U.S. Steel's auto-oriented production occurs at unionized facilities.
Nippon Steel, for its part, has promised to invest in blast furnace production as part of a potential U.S. Steel purchase. The analysts said those investments — and the resulting increase in domestic auto-grade steel supply — would likely bring down costs for automakers.[/quote]