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Allies in alloys • Minnesota Reformer [1]

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Date: 2024-06-17  

KEEWATIN, Minnesota — Big shots usually don’t come to this small town for the American Legion Veterans Day spaghetti feed. Nor are they frequent shoppers at the Sinclair station next to the public housing complex. But politicians, journalists and the local hoi polloi rolled through town last month on their way to a U.S. Steel press event at Keewatin Taconite.

On their way, they might have noticed the new billboard along Highway 169. The wordy banner — hard to read at full speed — reassures skeptics that the proposed merger between U.S. Steel and Japan’s Nippon Steel would preserve jobs on the Mesabi Iron Range.

U.S. Steel CEO David Burritt stuck to this message as he celebrated his company’s $150 million investment in a new kind of pellet production at Keetac on May 23. These direct-reduced grade pellets resemble traditional taconite, but with higher iron content and less silica. They feed newer, greener methods of steel production rapidly becoming the industry norm.

But I imagine the politicians in attendance shifted in their seats a bit when Burritt extolled the $14 billion sale to Nippon as good for the Mesabi. It’s an election year. Supporting the Nippon deal is arguably the single least popular position a local candidate of either party could take heading into November.

It’s not about whether the deal makes sense; it’s about the way Japanese ownership of U.S. Steel makes people feel. That’s how foreign money pouring into the American economy at prodigious rates can be regarded as bad news by people demonstrably benefiting from it. It might help explain the uneasy politics of our times, too.

Sentiment on the Iron Range tilts heavily against the Nippon-U.S. Steel merger. The same is true in most parts of America dominated by iron mining or steelmaking. The United Steelworkers union publicly reiterated its opposition to the deal just recently.

There are several reasons for the merger’s frosty reception. The first stems from visceral distrust of foreign money controlling a company formed to stabilize and expand the U.S. economy a century ago. Other companies have long since succumbed to foreign owners, but U.S. Steel was a symbolic breakwater.

The Steelworkers also cite past labor disputes with Nippon, and warn that the company’s scheme to run U.S. Steel through an independent subsidiary could allow the company to use bankruptcy to escape its obligations to workers.

This charge hits hard. National Steel used a strategic bankruptcy in 2002 to shed pensions before U.S. Steel took over the Keewatin plant. Some of those miners worked an extra decade or more because their retirements were mostly lost.

But National Steel wasn’t a foreign company; it was an American one. The discarding of “legacy costs” is a hallmark of corporate leadership around the world, incentivized with bonuses and promotions. Foreign owners like ArcelorMittal and Cyprus Minerals have operated here before. Local leadership rolled out the red carpet for India’s Essar Group when that company broke ground on a still-incomplete iron ore facility in Nashwauk. Even today, some local officials tout Essar’s ability to resurrect its project, which stalled when that company went through its own bankruptcy.

Alternatively, Nippon is well funded and ready to put billions into U.S. Steel.

At the heart of this matter is a partnership between the United Steelworkers and Cleveland-Cliffs, now the largest integrated steelmaker in America.

Cliffs, under its famously outspoken CEO Lourenco Goncalves, forged an unprecedented alliance with its union. Together, the company and union seek to kill the Nippon merger so that Cliffs can buy U.S. Steel for itself, at a lower price.

U.S. Steel’s board remains committed to the Nippon deal, accusing Cliffs of interference. Cliffs keeps pounding on the table, insisting that the merger will never happen.

It makes for interesting theater, to be sure, and lawyers will surely benefit over time. But the fickle acceptance of some foreign investments while rejecting others creates an even more interesting dynamic. In this, Minnesota’s Iron Range isn’t isolated from the world, but rather an integral part of a global chess match.

Queen or pawn?

The mines have long served as a key political and economic power on the Range, shaping policy, election results and land usage since the 1890s. That remains true. Today, however, energy companies, construction firms and trade unions join to form an even larger political syndicate. Mining might employ a small fraction of the workers from a century ago, but it’s producing similar amounts of iron ore and gross domestic product from the region’s resources.

And it all runs on electricity, most of it sold by Minnesota Power.

On May 6, Allete, the parent company of Minnesota Power, announced it would be acquired by a privately held group headed by Global Infrastructure Partners and the Canadian Pension Plan Investments corporation.

This deal shocked thousands of Minnesota Power employees and retirees, mostly from northern Minnesota (my father-in-law among them). Reassurances emerged that Canada’s close alliance with the U.S. would be a stabilizing force. Canadian public pensions are, after all, long term investments allowing the company to reinvest rather than maximize short-term profits.

But the lead dog was always Global Infrastructure Partners, an American multinational firm. On May 17, Walker Orenstein of the Star Tribune reported that the world’s largest asset manager, BlackRock, would itself be acquiring Global Infrastructure Partners, making it the owner of Minnesota Power.

BlackRock holds $10 trillion in assets, twice what the U.S. government collects in taxes each year. According to Orenstein’s report, BlackRock already owns a sizable minority share of Allete stock, along with energy competitors like Otter Tail and Xcel Energy. BlackRock also owns large minority chunks of Minnesota Power’s two biggest customers, the aforementioned Cleveland-Cliffs and U.S. Steel.



Deals like this are carefully crafted to avoid antitrust complaints, but the power of a company like BlackRock — even with minority stakes — carries a majority impact. From electrical generation to the sale of flat-rolled steel, BlackRock’s investors make money every step of the way.

So, here’s an honest question: Is this better or worse than Nippon Steel buying U.S. Steel? Does the fact that BlackRock is based in New York mean that Americans have any meaningful leverage in the event of layoffs or plant closures? I’m not so sure.

Foreign firms have purchased other mainstay companies in northern Minnesota before. In 2004, Canadian National Railway purchased the Duluth, Missabe and Iron Range Railroad. The DM&IR was itself a former U.S. Steel property, linked in corporate synergy with Iron Range mining concerns since the beginning of ore operations.

That deal prompted local complaints at the time, but the controversy gradually faded into the mists of economic reality. Just this year, Canadian National put 600 new iron ore hopper cars into service, building them with raw materials from U.S. Steel and painting them with the classic colors of the DM&IR. The cars were, however, assembled in Mexico.

North American trade relationships have a huge impact on jobs, but are largely accepted. Could this ever become the case with Japan?

One argument for the Nippon/U.S. Steel merger suggests that the deal would be of diplomatic value to the United States. It’s a way for Japan to help the U.S. while the U.S. helps Japan in southeast Asia against China, a common rival both economically and geopolitically.

Compare that to what Cleveland-Cliffs is doing trying to buy the American assets of Novolipetsk Steel (NLMK), a Russian steel firm that supplies that country’s defense industry. NLMK is led by Vladimir Lisin, the third-richest oligarch in Russia, a man who nevertheless escaped economic sanctions in every country but Australia. How? By threatening layoffs in those countries.

To recap: A firm supplying Russia’s invasion of Ukraine could cash out its American holdings without penalty, thanks to the same company trying to kill a legal deal with an American ally.

In other words, everywhere you look, you see the intermingling of foreign investment and American industry. Before you say we need to avoid that road at all costs, i.e., the Nippon deal, consider the alternative, given the requirement for investment dollars to stay viable:

American corporations like Cliffs and U.S. Steel prostrating themselves to hedge funds and investment firms, chewing at each other like desperate animals at a very bad zoo.

This would not preserve or expand jobs on the Mesabi Iron Range, or anywhere else for that matter. In fact, it’s a road to mass unemployment and wider economic disparities. If we’re lucky, our kids might find work in the wars.

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