Cliffs/USS merger would be anti-competitive: auto group

A group of automakers is taking a stand against a potential merger of US Steel and Cleveland-Cliffs, warning that such a combination would be anti-competitive, Kallanish learns.

In a letter to Congress and regulators, the Alliance for Automotive Innovation (AAI) argues that the merged entity would control too much of the automotive steel market, threatening to increase costs for manufacturers. The group, representing Hyundai, General Motors, Toyota Motor and Volkswagen, is concerned about the availability of competitively priced essential car parts should the sale proceed.

“The potential concentration in domestic steel production that will result from this proposed transaction deserves antitrust scrutiny from the subcommittee and government regulators. In particular, the government should examine the potential for anti-competitive pricing of materials used by steel-reliant automotive manufacturers,” writes John Bozzella, ceo of AAI.

if Cleveland-Cliffs acquires US Steel, the combined entity would produce “more than 90% of US advanced high-strength steel used for automotive underbody panels, bodyside reinforcements and impact areas,” AAI’s letter states. Furthermore, the company would provide “80% of body in white (BIW) steel used to produce a vehicle’s structural frame [and] 65 percent of US exposed grade steel used for automotive surface panels like doors, hoods and fenders.”

Domestic steel market participants tell Kallanish that the auto group has a point.

The operator of a large service centre in the Midwest says: “The AAI is correct. Prices, all things being equal, would be much higher with a Cleveland-Cliffs’ purchase of US Steel.  Antitrust issues are driven by how regulators define the relevant markets. The usual way the Clayton Act would be applied, you would think there isn’t a path to approval without a major break-up.”

A second service-centre source adds: “This deal will never happen. The administration will not allow it.”

The AAI letter addresses how the consolidation of blast furnaces and the ownership of most iron ore mining and processing facilities would put automakers at a costly disadvantage. There are implications for electric vehicle manufacturers too.

“A consolidation is also problematic for the production of electrical steel (e-steel) used for electric vehicle (EV) motors. Currently, there are two primary domestic suppliers of automotive grade e-steel in the US: Cleveland-Cliffs and Big River Steel (owned by US Steel). In a combined company, 100 percent of the domestic e-steel needed for electrical motors and EV production will be concentrated in a single company,” Bozzella writes.

Cleveland-Cliffs made an unsolicited offer to purchase US Steel for $7.25 billion but was rebuffed (see Kallanish passim). Later US Steel announced it was considering bids from multiple potential buyers (see Kallanish 30 August).

Kristen DiLandro USA