Pittsburg Post-Gazette

Nippon Steel is the Best Deal for Union Steelworkers

Adjunct Fellow
Will Chou
Will Chou
Japan Chair Fellow
The exterior of the US Steel Tower, headquarters of USX Steel, on March 20, 2024, in Pittsburgh, Pennsylvania. (Jeff Swensen via Getty Images)
The exterior of the US Steel Tower, headquarters of USX Steel, on March 20, 2024, in Pittsburgh, Pennsylvania. (Jeff Swensen via Getty Images)

Labor votes in the Mid­west are at a pre­mium in this tight pres­i­den­tial race, and no­where is that truer than in Penn­syl­va­nia. To woo the United Steel­work­ers Union (USW), Pres­i­dent Biden an­nounced last month plans to tri­ple Sec­tion 301 tar­iffs on Chi­nese steel, in­vited USW pres­i­dent David McCall to the White House for a state din­ner in April and then joined the USW in op­pos­ing Nip­pon Steel’s pur­chase of U.S. Steel, claim­ing that it was vi­tal for the lat­ter to re­main “do­mes­ti­cally owned and op­er­ated.”

When an­nounc­ing the tar­iffs, Biden pointed out that steel made in the U.S. “emits half as much car­bon as steel made in China.” The car­bon re­duc­tions in the U.S. are only pos­si­ble be­cause much of do­mes­tic steel is pro­duced not by old-fash­ioned blast fur­naces, but by re­cy­cling scrap steel in elec­tric arc fur­naces.

Much of the la­bor force at these elec­tric arc fur­naces are non-union la­bor. Blast-fur­nace steel mills like the U.S. Steel-owned Mon Val­ley Works, out­side of Pitts­burgh, still em­ploy many USW work­ers.

Prevent­ing the sale

Fear of los­ing jobs in these older style plants is be­hind the USW’s cam­paign to pre­vent the Jap­a­nese steel gi­ant, Nip­pon Steel Cor­po­ra­tion, from ac­quir­ing U.S. Steel, one of two U.S. steel­mak­ers still us­ing blast fur­nace tech­nol­ogy. The USW wants U.S. Steel to go to Cleve­land-Cliffs, sur­ren­der­ing its rights to ap­prove any U.S. Steel sale to the Ohio com­pany.

Its re­jec­tion of Nip­pon Steel in fa­vor of a sin­gle al­ter­na­tive will en­dan­ger their ob­jec­tives in the long run. En­gag­ing with Nip­pon Steel at the ne­go­ti­a­tion ta­ble is the best way to en­sure a long-term leg­acy of union steel­mak­ing in Pitts­burgh

The USW and Nip­pon Steel did meet in Pitts­burgh on March 7 to dis­cuss how Nip­pon Steel would abide by the union’s Ba­sic La­bor Agree­ment (BLA) with U.S. Steel. Despite guar­an­tees to sup­port union mem­bers at blast fur­nace plants, in­clud­ing no lay­offs be­fore Sep­tem­ber 2026 and $1.4 bil­lion of cap­i­tal in­vest­ment, the USW lead­er­ship has re­fused to meet fur­ther.

The union be­lieves Nip­pon Steel is us­ing le­gal­ese to evade BLA ob­li­ga­tions. Nip­pon Steel is only us­ing stan­dard busi­ness lan­guage to ac­count for un­ex­pected and ex­treme cir­cum­stances. The USW would be bet­ter off meet­ing with Nip­pon Steel to ham­mer out iron-clad as­sur­ances.

Reg­u­la­tory ef­fects

The USW should also be wary of mis­trust­ing Nip­pon Steel and plac­ing its trust in Cleve­land-Cliffs be­cause of likely reg­u­la­tory and eco­nomic re­sults.

Only blast fur­nace mills can pro­duce cer­tain steel needed by in­dus­tries, such as au­to­mo­biles. A Cleve­land-Cliffs and U.S. Steel merger would con­trol 100% of blast fur­nace pro­duc­tion in the U.S., 100% of the U.S. pro­duc­tion of elec­tri­cal steel used in EV mo­tors and elec­tri­cal grids, and 95% of do­mes­tic up­stream iron ore pro­duc­tion.

The com­bined steel en­tity would likely trig­ger im­me­di­ate fed­eral an­ti­trust ac­tion to or­der, at min­i­mum, the di­ves­ti­ture of parts of the new com­pany. The di­ves­ti­ture amounts dif­fer: Cleve­land-Cliffs es­ti­mates $2 bil­lion; U.S. Steel es­ti­mates $7 bil­lion, or nearly the en­tire value of the orig­i­nal $7.3 bil­lion Cleve­land-Cliffs bid.

Regard­less of the amount, any di­ves­ti­ture would risk the loss of jobs. A merger with Nip­pon Steel would not cre­ate such mo­nop­o­lies.

The union’s big­ger con­cern, how­ever, should be about the fu­ture. Union work­ers’ blast fur­nace steel plants need new tech­no­log­i­cal in­vest­ment. Cleve­land-Cliffs can­not make those in­vest­ments, as it lacks Nip­pon Steel’s cap­i­tal re­sources, and pre­fers to spend $600 mil­lion on stock buy­backs in the first quar­ter of 2024 and has an­nounced a fur­ther $1.5 bil­lion in stock buy­backs. These buy­backs will force it to take on more debt, rather than mak­ing any in­vest­ments.

In con­trast, a Nip­pon Steel merger would per­mit tech­nol­ogy trans­fers that will make U.S. Steel’s blast fur­nace plants more com­pet­i­tive and vi­a­ble in the long-term. In ad­di­tion to the $1.4 bil­lion cap­i­tal in­vest­ment al­ready men­tioned, Nip­pon Steel has pledged $500 mil­lion a year in R&D to U.S. Steel, a sharp up­tick from the $40 mil­lion that U.S. Steel pre­vi­ously spent.

At the heart of this tech­nol­ogy trans­fer is Nip­pon Steel’s hy­dro­gen-in­jec­tion blast fur­naces. Using hy­dro­gen in­stead of coke to re­duce iron ore, Nip­pon Steel al­ready can re­duce car­bon emis­sions by 33% and ex­pects to achieve 50% by 2040. At those fig­ures, blast fur­nace steel be­comes as low-car­bon as elec­tric arc fur­nace steel.

These ad­vances should ad­dress USW con­cerns that Nip­pon Steel will fa­vor elec­tric arc mills and shut­ter union-heavy blast fur­nace mills, such as the Mon Val­ley Works out­side of Pitts­burgh.

A ben­e­fi­cial pur­chase

Nip­pon Steel’s pur­chase of U.S. Steel will ben­e­fit USW’s fam­i­lies, friends, and com­mu­ni­ties as well. The com­pany has pledged to re­tain U.S. Steel’s name and head­quar­ters, and will move its own North Amer­i­can of­fices from Hous­ton to down­town Pitts­burgh.

USW lead­ers have an ob­li­ga­tion to sup­port and ad­vo­cate for their mem­bers. Pin­ning all their hopes on Cleve­land-Cliffs is risky. The union should ne­go­ti­ate with Nip­pon Steel and se­cure the guar­an­tees and in­vest­ments that will strengthen USW mem­bers and their blast fur­nace mills in the long term.

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