Posted originally on Dec 5, 2024 by Martin Armstrong

Nippon Steel, a Japanese company, has offered to buy US Steel for $14.9 billion, yet both President Joe Biden and president-elect Donald Trump strongly oppose the deal. Both men believe it is vital to keep the historic company domestic. But why has America’s steel industry become less competitive?

Demand for steel fell 0.4% YoY during the first half of 2024 to 50.9 million tons, with futures down 37% since the start of the year marking the lowest level since December 2022. Domestic demand is simply not there. The US accounts for about 4% of global demand while China accounts for an overwhelming 50%.

The majority of domestic demand is generated by government. The Infrastructure and Investment Jobs Act of 2021 provided $550 billion for steel-based initiatives which provided a boost to the industry. Still, the DEMAND is simply not there. China’s oversupply of steel has saturated the market and made the product far less valuable. China has less environmental and climate regulations and the government continues to provide large subsidies to support the measure. All of the carbon neutral measures are seriously hurting the industry, but China has not bought into the climate change agenda.

Exported steel from China doubled from 2020 to 2023 after reaching 94.5 million tons. Demand in China for 2023 was 911 million metric tons, marking a 50% increased from 2010. The machinery sector in China has been continuously rising, with its share of steel demand rising from 20% in 2010 to 30% in 2023.

Tariffs would make Chinese steel more expensive for American companies. That will not help to attract international investments in the industry. Then those costs will be passed on to all US industries relying on steel from automotives to construction. American manufacturing is at risk. It is believed that the tariffs Trump implemented on Chinese steel during his first term helped 1,000 steelworkers keep their jobs, but at the same time, manufacturing positions fell by 75,000. Yet another reason why we must look at the economy from macro standpoint as everything is connected.