U.S. Steel Corp. shares are jumping in premarket trading Friday after Nippon Steel offered a drastically higher investment to update America’s rusted belt facilities. In recent meetings with White House officials, Nippon has reportedly offered to increase the $2.7 billion it had previously offered to upgrade U.S. Steel factories, sources said, with some saying it could go up to $7 billion.
Trump vociferously opposed the Nippon-U.S. Steel tie-up during his 2024 presidential campaign. Trump had also said the United States will impose a 25% tariff on top of existing duties on all steel imports to the country and that nobody could have a majority stake in U.S. Steel.
But the new president has been known to change his mind frequently. The two companies resumed merger talks with the Trump administration in February, following the former administration’s decision to block the deal.
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Trump, however, told Reuters that any collaboration would be an investment and not a purchase in the U.S. steel market amid steel trade union pressures. Nippon Steel has stated that it remains committed to the deal and is exploring options to ensure its completion.
But why does Japan’s Nippon Steel want the deal so desperately?
In 2021, Nippon Steel released a long-term strategic plan that included boosting its global steel production from 66 million to 100 million metric tons annually. It also planned to close five of its 15 blast furnaces and shift production to less-polluting electric arc furnaces while cutting 10,000 jobs. With the savings, it aimed to expand globally, minimizing its dependence on a dwindling domestic market, constrained by a mature economy and shrinking population.
Steel demand in Japan is already down 40% from its peak in 1990, according to a 2024 report from the Washington-based Progressive Policy Institute (PPI).
Contrary to Japan, the United States phased out nearly 46 million metric tons of steel capacity between 1978 and 1988, with Pittsburgh bearing a third of these losses. Looking further back in history, by the 1980s, Nippon Steel had displaced U.S. Steel as the largest steel producer outside the Soviet Union. In 2023, China’s Baowu Group led global production in steel, followed by Arcelor-Mittal. Nippon Steel currently ranks third while the United States is fourth. However, in previous years, U.S. Steel trailed Japan significantly.
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According to a report by East Asia Forum, a temporary reprieve by not selling U.S. Steel is no panacea for saving American steel production. If history is any guide, it was U.S. Steel that diversified its assets to Marathon Oil (acquired by U.S. Steel in 1982) because its business was not to make steel but profits.
“They [Japan] are one of the leading producers of lightweight, high-strength steel sheets, and there’s a big appetite for that globally,” notes Cicero Machado, senior manager of Bulk assets at Wood Mackenzie.
As a close ally, transferring that advantage to a declining producer like the U.S. Steel could revitalize the Pittsburgh-based company, he added.
Despite a decline in Nippon’s (-4.8% in Tokyo) shares, the U.S. Steel’s (+4.4%) shares rose on Friday in response to news of this investment.