U.S. Steel’s Mon Valley Project Cancelation, the Truth

Most of the mainstream press’ coverage of U.S. Steel’s giant Mon Valley plant upgrade project cancelation focuses on several issues, from permitting delays to U.S. Steel stating that a competing steelmaker plans to build a facility in another state.

Mon Valley project details

The combined investments would have allowed U.S. Steel to produce thin gauge HRC at CRC gauges.
Buying organizations would have the opportunity to pay less per ton for this material than the cold rolled coil alternative. In other words, the price of steel from this line would have likely fallen somewhere between hot rolled and cold rolled prices.
Today, only Nucor and Steel Dynamics have this kind of capability.
In theory, these innovations would have helped U.S. Steel boost margins for HRC and garner rapid market acceptance for those premium products. 

Other benefits from the upgrades would have included lower pollution and new jobs. In addition, the upgrades would have made U.S. Steel able to better compete against the electric arc furnaces (EAFs) — particularly Nucor and SDI.
In essence, the project would have cleaned up U.S. Steel’s entire Mon Valley facilities while bringing state of the art technology to its plants. It’s a China steel-esque cleanup program, comparable to the massive changes underway in China as that country moves from dirty basic oxygen furnace (BOF) steelmaking to EAF steelmaking.

Coking coal announcement more significant

But the critical announcement, in our view, involves U.S. Steel’s decision not to upgrade its coking coal facilities.
Furthermore, it will permanently idle three batteries at the Clairton plant, according to the Pittsburgh Post-Gazette. In addition, U.S. Steel will reduce its coke production by 17%. This move suggests that U.S. Steel plans to trim production of steel produced via BOF production methods.
Those production cuts will likely impact steel produced at the company’s Gary Works location. It has already shuttered capacity at Granite City. 

Automakers will feel the greatest impact

The rapidly shifting domestic steel production landscape will profoundly change annual or long-term contracting negotiation dynamics.
Cleveland-Cliffs’ acquisition of AK Steel and most of ArcelorMittal’s North American assets means automotive OEMs sourcing ultra-high-strength steels only produced via BOF methods will have significantly less negotiation power. 
U.S. Steel’s move to curb coke production should signal to the market that the company intends to tightly manage capacity, further supporting steel prices.
Automakers will want to improve their BATNAs (best alternative to a negotiated agreement) by creating their own optionality.
HRC prices are at around $1,500/st. The steel industry knows prices could fall rapidly if too much capacity comes on-stream during the second half of 2021.
But with each major producer announcement, the wall of steel many prominent analysts expected to come into the market has failed to materialize.
As MetalMiner often says, nothing kills high prices like high prices.
However, with bold strategic moves across the producer community — Cliffs, AK, ArcelorMittal and now U.S. Steel (and its Big River Steel acquisition), today’s current industry heads look quite a bit different from their charlatan predecessors. 
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