National security, climate concerns abound after U.S. Steel sale announced

The planned sale of the United States Steel Corporation, an industry giant and Northwest Indiana icon for more than a century, has prompted a strong backlash from union leadership and elected officials. Environmental advocates have renewed calls for the company to reduce its carbon emissions in a bid to slow down human-made climate change.

On Monday, the Pittsburgh-based U.S. Steel announced that it had accepted a roughly $14.1 billion cash acquisition deal from Nippon Steel, the largest steel manufacturer in Japan and one of the largest in the world. The deal is worth nearly twice what U.S. Steel’s domestic rival Cleveland-Cliffs offered to pay for the company in August in a cash and stock offer that was rejected. U.S. Steel President and CEO David Burritt wrote at the time that Cleveland-Cliffs’ leadership had refused to sign nondisclosure agreements as part of a due diligence process unless his company agreed to the terms of their proposal in advance, an arrangement he said was unacceptable.

At the same time it announced its rejection of Cleveland-Cliffs’ offer, U.S. Steel made known that it was actively reviewing proposals from multiple prospective buyers, fueling four months of conjecture and concern over the century-old company’s future. The company was formed in 1901 when a group led by financiers J.P. Morgan and Charles Schwab bought a steel company owned by Andrew Carnegie and merged it with the rival Federal Steel and National Steel companies.

Gary was founded as a company town in 1906, with the city bearing the name of the company’s first chairman, Judge Elbert Gary. U.S. Steel’s presence in the city has remained an important facet of Gary’s identity even as the number of employees at the company’s Gary Works facility has declined in recent decades. The facility remains the largest integrated mill in North America. It’s the eighth largest employer in Lake County and the third largest in Porter County, according to data from the commercial directory service Data Axle. The company employs more than 4,300 workers at Gary Works, according to its website.

Though Nippon Steel President Eiji Hashimoto wrote that his company is “committed to honoring all of U.S. Steel’s existing union contracts,” the leadership of the United Steelworkers (USW) condemned the deal. In a statement released Monday, USW International President David McCall wrote that the Nippon Steel buyout “demonstrates the same greedy, shortsighted attitude that has guided U.S. Steel for far too long.”

“We remained open throughout this process to working with U.S. Steel to keep this iconic American company domestically owned and operated,” McCall wrote, “but instead it chose to push aside the concerns of its dedicated workforce and sell to a foreign-owned company.”

Under its contract with U.S. Steel, the USW has the right to counter an acquisition offer with its own bid for assets covered under the contract. The union threw its weight behind Cleveland-Cliffs’ acquisition bid in August after news of the proposal broke, vowing to counter any offer made by a different prospective buyer.

In his statement, McCall wrote that neither U.S. Steel nor Nippon Steel had reached out to the union regarding the deal, which he said was in violation of an agreement requiring U.S. Steel to notify the USW of a change in control or business conditions.

“Based on this alone, the USW does not believe that Nippon understands the full breadth of the obligations of all our agreements, and we do not know whether it has the capacity to live up to our existing contract,” McCall wrote. “This includes not just the day-to-day commitments of our labor agreement, but also significant obligations to fund pension and retiree insurance benefits that are the most extensive in the domestic steel industry.”

McCall was not the only one upset by U.S. Steel’s announcement. News of the Nippon Steel deal was followed by a flurry of statements from steel country elected officials, both Democrats and Republicans, voicing concerns and condemnations.

“It’s absolutely outrageous that U.S. Steel has agreed to sell themselves to a foreign company,” U.S. Sen. John Fetterman, D-Pennsylvania, wrote in a statement. “Steel is always about security — both our national security and the economic security of our steel communities. I am committed to doing anything I can do, using my platform and my position, to block this foreign sale.”

Senator J.D. Vance, R-Ohio, lamented that “a critical piece of America’s defense industrial base was auctioned off to foreigners for cash” and vowed to “do everything in my power to protect the future of our nation’s security, industry, and workers.”

In the region, both U.S. Rep. Frank Mrvan, D-Highland, and his prospective 2024 electoral opponent, Lake County Councilman Randy Niemeyer, R-7th, echoed the sentiments.

“I am abjectly disappointed that a foreign entity with a history of untrustworthy trade actions is exploiting American workers and members of organized labor to benefit the executives of U.S. Steel,” Mrvan said in his statement. “Since day one, I have stood with labor and voted to support transformational federal investments in the American steel industry, and now that we are poised for robust growth in the coming months and years from these actions, we must not allow foreign ownership of U.S. Steel to jeopardize the strength of our economy, our national security, and the livelihoods of steel-producing communities throughout our nation.”

When Josh Spoores a steel industry analyst with the London-based CRU Group, spoke to the Post-Tribune in early September, he dismissed national security concerns over a then-hypothetical foreign buyout of U.S. Steel invoked by elected officials as “completely invalid.” In the wake of news of the Nippon Steel deal, he said, he hasn’t changed his perspective.

Spoores said that U.S. Steel does not control a large enough share of the domestic steel market to make a meaningful impact on the nation’s defense preparedness, and stressed that the U.S. president will retain the legal authority to compel U.S. Steel’s facilities to produce vital goods in times of crisis, regardless of ownership. He pointed to President Joe Biden invocation of the Korean War-era Defense Production Act to compel manufacturers to increase production of N95 masks, syringes, and other supplies related to the fight against the COVID-19 pandemic.

In Spoores’ view, elected officials who have announced their intention to intervene in the sale are engaging political grandstanding.

“I think it’s pretty ugly,” Spoores said. “I don’t know what power they have to do anything and I don’t know the process by which they would do that.”

Adam Green, the Managing Director of the analytics and consulting firm World Steel Dynamics, attributed much of the uproar over the acquisition deal to U.S. Steel’s unique status as an icon.

“U.S. Steel is probably one of the few household names of steel brands,” he said. “It’s a fundamental building block in the U.S.’s industrial history.”

Spoores and Green both stressed that foreign participation in the American steel industry is nothing new. Nippon Steel made its entrance into the American market in 1984 with an investment in a West Virginia-based steel company. The company now has eight U.S. facilities, including three in Indiana.

The future of U.S. Steel has broad implications for the fight against human-made climate change. In their announcement, U.S. Steel and Nippon Steel reiterated a pledge they first made separately in 2021 to achieve net-zero carbon emissions by 2050.

In service of this goal, Nippon Steel plans to employ an array of new technologies aimed at cutting carbon emissions, including hydrogen injecting in blast furnaces, by using the clean-burning gas in place of coal in part of the steelmaking process; large scale electric arc furnaces, which are used for energy-efficient recycling of scrap iron and steel; and using hydrogen in direct iron reduction — a process that removes oxygen from iron ore in a solid state, forgoing the more energy-intensive use of a blast furnace. In 2020, U.S. Steel began operating a $412 million arc furnace at its Fairfield Works facility in Alabama.

Hilary Lewis, steel director at the green industry group Industrious Labs, told the Post-Tribune that the companies’ current plans do not go far enough nor move fast enough to address the carbon emissions contributing to a warming planet. While she lauded U.S. Steel’s implementation of the arc furnace and plans to work with a Midwestern “hydrogen hub” partnership on carbon-reduction efforts, she said the company needs to do more.

“It just falls woefully short of what is needed and what is possible,” Lewis said.

In a news release issued Wednesday, the international environmental advocacy group SteelWatch voiced similar concerns, criticizing Nippon Steel for what it sees as a sluggish pace toward carbon-neutral status.

“Even in 2050, (Nippon Steel) plans to be running blast furnaces, with the promise of speculative technologies that — by their own admission — will cut emissions by 50% at best,” the organization wrote. “Inadequate as they are, these emission reduction plans are also far too slow: implementation is scheduled for the 2040s, meaning decades of uncontrolled carbon emissions in line with 2.4 degrees of global warming plus air pollution affecting local communities.”

Industrious Labs and SteelWatch both seek a swift move toward “green” hydrogen — produced using electricity from renewable sources — in the steelmaking process from Nippon Steel, U.S. Steel, and the rest of the industry. While more expensive, green hydrogen has a lower environmental impact than hydrogen produced from natural gas, since the process of producing the latter results in carbon emissions. Lewis hopes that U.S. Steel will take further advantage of ample federal hydrogen subsidies in its move toward decarbonization.

“I think we have all the right ingredients to make a good if not perfect environment for steel companies to make bold investments in green steel,” she said.

Spoores, for his part, said that U.S. Steel is already decarbonizing as fast as can reasonably be expected.

“There’s always going to be people that don’t think you’re moving fast enough,” he said. “Some of these people are never going to be happy unless you go all in (on hydrogen), but hydrogen isn’t that cheap.”

Before it can be completed, the sale of U.S. Steel must first be approved by the company’s shareholders and by government regulators. The company said that it anticipates finalizing the deal in the second or third quarter of 2024.

The prospect of the sale has stoked anxieties over the impact it will have on the region’s economy. On Tuesday, Indiana State Rep. Carolyn Jackson, D-Hammond, lamented the Nippon Steel acquisition deal as a likely harbinger of further downscaling of operations in the Midwest.

“Nippon Steel is a Japanese-based company, and many employees and union members are unhappy about the sale and worried that Nippon will continue to operate as U.S. Steel has in the last few years by closing plants in the Great Lakes area, such as in Granite City, Detroit and East Chicago. Other locations have idled their tin mill,” Jackson wrote. “The closing and idling of plants is not in the best interest of U.S. Steel’s many employees.”

Green anticipates that the Nippon Steel acquisition deal will result in heavier use of U.S. Steel’s vast iron ore resources. Minntac Mine, owned by the company and located in Minnesota, is the largest such operation in the country. That Nippon Steel was willing to pay such a high price for U.S. Steel, Green said, is a potential sign that U.S. Steel’s mining operations “might in fact be utilized at a much higher rate if Nippon chooses to extract and export what are truly relatively low cost and high quality iron ore assets to other facilities that they’re currently operating in Japan and around the world.”

adalton@chicagotribune.com