United States Steel (X 3.94%), which is usually just called U.S. Steel, is an iconic name in the global steel industry. But sadly, it's no longer an industry-leading company.
That doesn't mean there's no value in the company's business, but it helps explain why U.S. Steel agreed to sell itself to Japanese steel giant Nippon Steel for $55 per share way back in 2023. Things got very complicated after that deal was announced and still remain complicated today.
What does U.S. Steel do?
You may have guessed that U.S. Steel makes steel. But the key here is the type of steel it makes and how it makes it, which is primary steel and blast furnaces, respectively. The world needs primary steel, which is created with iron ore and metallurgical coal and is a dirty, expensive process.
U.S. Steel can make a lot of money when both the utilization rates of its facilities and steel prices are high. But when both utilization rates and steel prices are low, it can bleed a lot of red ink.
Image source: Getty Images.
This is why U.S. Steel has been working to broaden its steel production techniques to include electric arc mini-mills. These steel mills are smaller and more flexible. They're easier to ramp up and down along with demand, which helps to create more sustainable profit margins through the cycle.
The company has been building a large electric arc mini-mill, which just recently started to ship steel, with the goal of better serving steel demand. This is likely to be a crown-jewel asset for the company for years to come.
Why is $55 such an important price?
The share price of $55 isn't random. It was the price that U.S. Steel agreed to sell itself for when the company agreed to be bought by Japanese steel giant Nippon Steel. Then the trouble began in earnest because the U.S. government got involved in the sale process and ultimately blocked the deal. There are additional suitors in the wings, reportedly including North American giants Cleveland-Cliffs (CLF 6.78%) and Nucor (NUE 1.95%).
That pairing actually makes sense, since Cleveland-Cliffs is focused on blast furnace technology and Nucor on electric arc mini-mills. But a new administration in Washington has flipped the script.
There's a chance that Nippon Steel could still be in the running in some fashion, and there are new tariffs on foreign steel to contend with, too. So not only is the steel industry in a state of flux, thanks to geopolitical issues, but so, too, is the potential sale of U.S. Steel to some other company.
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Key Data Points
The only number that's out there, meanwhile, is $55 per share, which is what Nippon was willing to pay for U.S. Steel. It isn't clear if Cleveland-Cliffs and Nucor would pay as much, less, or more. And if there's no deal at all, does the shifting tariff environment give U.S. Steel a new lease on life?
The only thing that's certain right now is that there's a great deal of uncertainty around U.S. Steel.
U.S. Steel isn't for most investors
Buying U.S. Steel below $55 or even $10 doesn't change the big picture. This is a special-situation stock operating in a highly complex and uncertain period. If you're looking for a steel investment, you should probably look elsewhere until there's more clarity. And if you're a fan of special situations, you should still tread with caution.
There are so many moving parts here that there's no way to tell how the story ends. In other words, unless you have a very high tolerance for risk and uncertainty, it's probably not worth buying U.S. Steel (at any price) right now.
