This Is What You Call A Win/Win Deal. US Steel Wins. Nippon Steel Wins. America Wins. Japan Wins

January 7, 2025 DINARRECAPS8

Notes From the Field By James Hickman / Simon Black January 7, 2025

The year was 1901, and it was pretty much a who’s who of American business and finance at the time. Andrew Carnegie. JP Morgan. Charles M. Schwab. Elbert Gary (namesake of the city Gary, Indiana).

It would be as if Elon Musk, Billy Gates, and Carl Icahn all got together on a new venture. It would be pretty much guaranteed to be a big deal. Those early 20th century titans formed what would become the world’s largest and most important company in that era— US Steel.

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This was a period of history in which the United States was growing by leaps and bounds. Entire cities were built from nothing. Rail was being feverishly laid across the country. New buildings and skyscrapers were going up in major cities.

And steel made it all possible. In 1901 it was the most vital commodity in the world, far more important than oil. And US Steel dominated the market; they had— by far— the best quality, the most efficient production, the most reliable distribution.

But that was more than a century ago.

Today US Steel is barely alive. It loses more than a billion dollars each year in negative Free Cash Flow, and it has only managed to survive by issuing a mountain of debt.

Now, it would be easy to blame US Steel’s problems on competition with rising, low-cost manufacturing superpowers like China and India (whose nations boast the world’s #1 and #2 steel producers respectively).

But that’s a far too simplified (and frankly incorrect) explanation. The US economy— including the steel manufacturing industry— is far more productive than India or China. Way more.

China’s Baowu Steel Group is the world’s largest steel company by production volume, with an annual output of more than 130 million metric tons. But with nearly 400,000 employees, the Chinese firm’s steel production per employee is less than HALF of what a US Steel worker can produce.

So, US Steel is still able to out-produce its Chinese competitors.

Cost is obviously a factor; US workers are clearly more expensive. But a far greater issue is all the wasteful political bureaucracy. The unions. The endless regulations and permitting. The parade of government inspectors. And most of all, politicians who deliberately hurt the company for political points.

The latter failure now belongs squarely to Joe Biden, who recently went out of his way to destroy any hope of US Steel resurrecting its former greatness.

It started in late 2023, when Japan’s largest producer, Nippon Steel, made an offer to buy US Steel. Nippon made a pretty sweet offer— $55 per share, a premium of almost 60% above US Steel’s stock price at the time.

On top of that, Nippon pledged to invest billions of dollars into US Steel to revitalize its factories and upgrade production capacity. They promised to honor all union contracts. They committed to support any national security related export controls.

This is what you call a win/win deal. US Steel wins. Nippon Steel wins. America wins. Japan (one of America’s closest allies) wins. Win/win. That’s what capitalism is all about.

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