Al Root

U.S. Steel and Nippon Steel have unveiled a plan to make the iconic U.S. steel maker, with ties stretching back to the 19th century, Andrew Carnegie, and J.P. Morgan, into a major industry player again.

If the stars align, it just might work.

The two companies closed on their " historic partnership," which was essentially an acquisition of U.S. Steel by the larger Nippon, in June. It was an excruciating process, which took almost two years.

With the deal done, the combined company can get to work deploying the $14 billion in capital commitments secured by President Donald Trump, a condition of approving the transaction.

Nippon and U.S. Steel announced plans to spend $11 billion of the $14 billion over the coming three years on Tuesday. That's a lot. In the years before the acquisition, U.S. Steel was spending roughly $1 billion to $2 billion annually on equipment upgrades and maintenance.

"The benefits of this plan is one focused around investment, adding new capabilities to the U.S. Steel footprint," said U.S. Steel CFO Kevin Lewis. "Integrating best practices, knowledge, know-how...and using that to create incremental value for our stakeholders."

The increased amounts will go toward increasing steel production, upgrading the product mix, and lowering operating costs. The goal is to improve U.S. Steel's annual earnings before interest, taxes, depreciation, and amortization, or Ebitda, by $3 billion a year. That is a lofty target. U.S. Steel's Ebitda in 2025 was expected to be $1.6 billion, up from less than $1 billion in 2024.

Oftentimes, cost reduction in commodity businesses means increasing capacity, so costs per unit produced drop. The problem is that more production pressures prices, upsetting the supply-demand balance and eating up any potential benefits of investment.

That's a risk for U.S. Steel and Nippon. If this time is to be different, it will come down to the U.S. needing more domestic steel production, which can absorb increased capacity.

Steel demand was growing by leaps and bounds when U.S. Steel was formed in 1901, but American steel demand doesn't grow much anymore. There is an opportunity for new growth as auto manufacturing comes back to the U.S., and as tariffs make imports more expensive.

Today, U.S. steel consumption is roughly 110 million tons per year. Domestic production averages around 90 million tons annually. Over the past year, imports have totaled roughly 26 million tons, down slightly, due to increased tariffs that have raised costs. (The U.S. exports seven or eight million tons annually.)

There is room for domestic production to replace imports, as long as government policy is stable. "We've been heartened by this administration's, and prior administration's, commitment to the steel industry, given its criticality to both national and economic security," added Lewis.

Not all the money increases capacity. Some will improve U.S. Steel's capabilities. Steel isn't a monolithic product. There are hundreds of steel chemistries processed dozens of ways to make products suitable for cars, cans, and buildings. Not all products are made in the U.S., so upgrading capacity can be a way to improve earnings without upsetting overall supply and demand balances.

One example Lewis gives: The hot rolling mill, which squeezes red hot steel slabs into giant coils, at U.S. Steel's nearly-120 year old Gary Works, will get an upgrade so it can produce harder-to-make high strength steel products.

With fresh capital and technology, the outlook for U.S. Steel is brighter than it's been in years. But investors can't buy shares of U.S. Steel anymore. Still, they should pay attention to its plan. How American steel capacity and demand develop over the coming few years will determine how shares of Nucor, Steel Dynamics, and Cleveland-Cliffs fare.

Coming into Tuesday trading, those three stocks were up an average of 30% year to date. Higher steel prices are the best explanation of the move. Benchmark steel prices have averaged about $875 per ton since President Trump announced steel and aluminum tariffs in February, up about $100 from 2024 averages.

Write to Al Root at allen.root@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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November 04, 2025 09:00 ET (14:00 GMT)

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