10 Comments
Dec 20, 2023Liked by Jeffrey Carter

Great post Mr Carter! My father built his career post WWII in the steel business and built a fantastic launching pad for our family, my mother and seven kids! Watching the regulatory stranglehold tighten on our home grown industrial strengths has been a sad thing to watch throughout my life. We have truly become an "unserious nation"!

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Dec 20, 2023Liked by Jeffrey Carter
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Cliffs has a plant near Silver Bay MN. They make taconite there. Been there ever since I started going up there in 1972. It wasn't a new plant then! In your article, the stat that jumps out is how much they overpaid on an EBITA basis (but as Charlie Munger would tell you, EBITDA is highly manipulated)

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Dec 20, 2023Liked by Jeffrey Carter

No question they overpaid....but it could have been worse and it's better for buyers than having Cliffs own the whole thing!

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We will see! I don't know the traditional target for operating margin in the steel industry, but US Steel's seems pretty thin. Can Nippon double it?

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So much irony. The coup de grace for independent USS was the stupid, yet popular tariffs as implemented by the stupid, moronic, yet popular politicians.

WSJ - Subsidized demand, restricted supply market makes for a nice target.

https://www.wsj.com/articles/u-s-steel-nippon-japan-industrial-policy-tariffs-d325f107?st=hbnjoxuic2rhqwl

Reason - Vance can't even remember his own book.

https://reason.com/2023/12/19/what-j-d-vance-could-learn-from-reading-hillbilly-elegy/

Lincicome - "Anyway, I get the desire to blame foreigners for US Steel's demise, but the real killer was Nucor & other mini-mills in the right to work South (some of which US Steel just acquired), plus decades of govt support that encouraged waste & inefficiency"

https://www.cato.org/commentary/us-steel-ubiquitous-market-failure#

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Agree on tariffs. They only made US Steel LESS competitive! Tariffs are stupid.

Interesting about Nucor and mini-mills. Traditionally, big industries like steel were highly centralized. I do not know the steel industry--can you do better and earn more profit with several smaller specialized mills???

Vance is playing to the crowd. I am sure voters in southeastern OH work at US Steel and are affected by it in some way. He is smart, but he is a politician.

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I read some short steel history a couple years ago so my memory is not detailed. Like the story of most modern but older industries, the technology changed and those incumbents that could not adapt fell behind. Obviously old steel mills are huge, so any changeover requires a lot of commitment. And US steel was protected way back then, so they didn't feel the pressure and try to adapt until it was too late. It's always interesting to go around SE Chicago/NW Indiana area. All the history that was built there. Lots of the old stuff is gone. Some still chugging away.

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I knew the Chinese were able to break into the market making pig iron, which no one wants to make. You are correct when you say that all kinds of government protections were put in place going back to the 1970s. That helped make them uncompetitive.

Competition is great. It irks me that the Republican leadership in Nevada has killed it in this year's presidential primary. The principle is the same in business.

I do think that there are some things that are in fact "national security" related and we ought to be very careful about who we let buy them. But, steel isn't one of them. If a war started tomorrow with Japan, we could build new steel plants and we could stop exports of any plant they owned and freeze any cash flows.

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The Jones Act screws over all sorts of people, especially the people of Hawaii, Alaska, and Puerto Rico. All in the name of national security. The act is one reason that shipbuilding isn't done in the USA much anymore. And it keeps on biting.

https://cei.org/blog/new-liquefied-natural-gas-ruling-makes-jones-act-even-more-unreasonable/

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