Since Nippon Steel, Japan's largest steel company, expressed interest in acquiring US Steel at the end of last year, there has been widespread opposition in the United States. However, it seems that Nippon Steel has not given up. After previously stating its intention to increase investment, it recently invited well-known figures in the US political arena to assist with the acquisition work. Can Japanese made iron achieve its goal?
  He told First Financial reporters that Nippon Steel was not the first Japanese steel company to be interested in the US market. As early as the 1980s and 1990s, companies such as Nippon Steel, Sumitomo Metal, and Nippon Steel have been investing in the US market one after another. Unfortunately, there has not been a successful case yet. "The current (US) election has increased the complexity of Nippon Steel's acquisition plan.
A 'no loss' transaction?
Public information shows that in 1970, Nippon Steel, formed by the merger of Hachiman and Fuji Iron, surpassed the United States Steel Company in crude steel production and became the world's largest. However, the subsequent two oil crises and the collapse of Japan's foam economy led to a long cold winter for the steel industry. In 2012, Nippon Steel and Sumitomo Metal Industries merged to form Nippon Steel&Sumitomo Metal. In April 2019, Nippon Steel and Sumitomo Metal were renamed as "Nippon Steel".
In the 1990s, Japanese steel companies had the best industrial technology, but it was difficult for them to succeed in the US market. Chen Yan believes that the main difference lies in the US labor union system and the industry organizations of steel workers' requirements for environmental protection, technology, and other aspects, which are completely different from the Japanese market.
However, even without a successful precedent, it cannot hinder the current Japanese iron industry from expanding into the US market. In Chen Yan's opinion, it is mainly Japanese companies that see the large demand for imported steel plates from abroad in the United States every year. During the previous Trump administration, additional import tariffs were imposed on steel, coupled with the current situation where the United States uses 100 million tons of steel per year and can only produce 80 million tons domestically. The prospect of directly producing steel in the United States through mergers and acquisitions is promising. Therefore, this is also why Nippon Steel has not given up lobbying American industry groups, members of Congress, and others
The United States Steel Corporation, with a history of over 120 years and located in the steel capital of Pittsburgh, was once known as the business card of the US steel industry. And Nippon Steel is the fourth largest steel manufacturer in the world. Industry insiders predict that if the acquisition of US Steel is successful, Japan Steel's crude steel production capacity will greatly increase, and it is expected to become the world's second largest steel producer after China Baowu Steel Group Co., Ltd.
The aforementioned acquisition of US Steel by Nippon Steel was a cash purchase at a price of $55 per share for a total amount of approximately $14.9 billion. According to data released by Nippon Steel in March this year, in order to successfully acquire a US steel company, Nippon Steel has decided to invest an additional 200 billion yen (approximately 1.4 billion US dollars) on top of the previous 2 trillion yen (approximately 14 billion US dollars) and is determined to win this project.
In the eyes of Nippon Steel, this is a 'no loss' deal. During a public response to the media, executives from Nippon Steel emphasized the profitability of US Steel in the past two years: in 2023, US Steel will make a profit of approximately 150 billion yen per year and be able to recover merger and acquisition costs within 14 years. However, given the strong demand for steel in the US market and the potential for steel price increases, Nippon Steel believes that the time for recovering M&A investments may be shorter.
Although the above-mentioned acquisition transaction announced in December last year has received approval from all regulatory authorities outside the United States, the transaction has not yet passed the national security review of the US government and faces strong union opposition. Currently, not only Biden, but even Republican presidential candidate Trump is opposed to this acquisition, "Chen Yan said.
Reversal
Last week, Nippon Steel announced on its official website that it would withdraw from its joint venture project with Baosteel Group in China. From catching up with high-tech in the past to now having a negligible gap, there has been a huge reversal in steel production, technology, and market between China and Japan, which is the fundamental reason for the end of cooperation between the two sides, "Chen Yan said." This is also a situation where both parties are facing renewal or giving up renewal after the contract expires, not a "mid way exit." "For strategic considerations, choosing not to renew is a common thing in the field of commercial cooperation
From the perspective of the industrial cycle, Chen Yan believes that Japan's steel industry began with the introduction of steel rolling technology from the United States in the 1950s, followed by the introduction of steelmaking technology from Europe. It basically reached its technological peak after the 1990s. Since then, Japan's technology in the steel field has not developed much. "Even if so-called digitization is introduced, it is only a 'icing on the cake', rather than a breakthrough from scratch
In the current context, it is not easy to succeed in the transformation of Japanese iron, as there are not many advantages to be discussed in terms of technology and quality engineering management, and they have placed their bets on the United States. "Chen Yan believes.
Gordon Jonson, founder and CEO of GLJ Research, also told reporters, "Some of the technologies possessed by Nippon Steel can improve the level of steel production in the United States. However, overall, I don't think it will have a significant impact." Previously, Nippon Steel had announced that its plan to acquire US Steel would be postponed from September to December this year.