Q&A: US Steel CEO on Biden impact, Big River buy

US Steel chief executive David Burritt discussed with Argus how he thinks the incoming administration of president-elect Joe Biden bodes for the US steel industry regarding protectionist Section 232 steel tariffs and his plans to acquire the remaining shares of electric arc furnace (EAF) steelmaker Big River Steel in order to achieve the integrated steelmaker's "best of both" strategy.

Edited highlights follow.

What do you think a Biden administration would mean for the US Steel industry and the Section 232 steel tariffs?

We've been around for 120 years and no matter who's leading this country we're going to work well with whoever is in charge. This would be absolutely no different. I will say first, President [Donald] Trump has done a great job with the economy, no doubt about that, and we expect president-elect Biden to carry on and keep doing a great job with the economy.

We think that this country deserves a strong steel industry, so we fully expect the 232 to continue because, frankly, it's the right thing to do, and we wouldn't expect him to make any deviation from that. We look forward to engaging with him and his team, and see what happens from there.

It would be a complete surprise if he decided to go a different direction just because it's the right thing to do.

If you were able to sit down with the Biden administration, what would be some of your top questions or concerns?

I think manufacturing is vital to the United States. We see so many times that people want to outsource manufacturing to other countries and that's dangerous, right? You just think about how important it is to be self-reliant, and if we've learned anything from the pandemic, certainly that gets highlighted.

You really can't have a robust supply chain unless you manufacture things in the US, which means you better have a good commodity industry to support that. You just can't rely on other countries for simple things like masks and medicines and steel to be produced here more cost-effectively.

There isn't any type of steel that we can't do as good or better than anywhere else in the world. There's no real reason for illegal steel to permeate this country when we can take care of ourselves and be self-reliant.

When do you intend to buy the rest of Big River Steel , and how exactly do you intend to pay for it?

As I said on the earnings call, I'd like to do that yesterday, and we'll do it as fast as we can. We've got three years to complete the transaction. We just finished our one-year anniversary, and we prequalified 11 grades from Big River Steel.

We're loaded with cash. We've been hurt dramatically by Covid-19 and we've navigated through that difficult time.

What I like to tell people is we've been engaged now for a year, we've gotten to know all the family and friends and we understand who the suppliers are, we understand the capabilities, and at the appropriate time we'll get married. I believe we're going to live happily ever after and create some breakthroughs in this business that other steel companies haven't imagined yet.

I can't get to the future fast enough, but we're not going to break news here. We'll just have to see how things play out.

Could US Steel redirect some money from capital expenditures at Mon Valley and Gary Works toward the purchase of Big River Steel?

Just to be clear on our priorities: Big River is number one, endless caster at Mon Valley Works is number two, the hot strip mill at Gary Works is number three, and the dynamo line in Europe is number four. Those are the big projects we are working through.

I don't necessarily see those as tradeoffs, I see those as opportunities that we'll be able to finance and move forward. We've said that the full completion of the Mon Valley Works, with the endless caster there, is indeterminate. We've built in a lot of optionality, so whatever we decide to do, we always have other considerations that we can do with whatever we do.

In terms of [capital expenditures], we've been able to dial it back and turn it back on, and we have a lot more nimbleness than we've ever had. The way I think about is we're cautiously bullish about the future. We have a lot of opportunities with us with Big River Steel and putting the endless caster in place. Particularly at Mon Valley, it's already [one of the], if not the lowest cost integrated mill in North America. It has a great energy source with the coke-making capability, so that's a great place to build a mill.

We've got more than enough cash to do what we want to do through 2021. If things turn down and Covid-19 gets worse, we have the optionality to be flexible to get through another round of this, which I think is prudent. But going forward, the opportunity is incredibly great because nobody else is on this path of best of both. Minimills keep doing the minimill stuff, and the integrated mills keep doing the integrated mill.

Does US Steel expect to restart any additional idled blast furnaces?

We have the flexibility to turn them on if our customers need the volume, but we're not at that point yet.

We have to see what happens here with our customers. It's clearly been a V-shaped recovery with automotive, and that seems like that should continue for a while. We're working very closely with those customers.

Has US Steel considered producing merchant pig iron for the US market like rival Cleveland-Cliffs has hinted at ?

One of the key points here is always about the optionality. We have that opportunity to do that, we could do it at Granite City, we could do it at Gary.

We can mirror that type of approach. The value creation from pig iron at this point in time probably isn't as great as it will be someday, but at some point in time that is certainly an opportunity for us.

What's you opinion of the Cleveland-Cliffs combination with ArcelorMittal USA's assets?

I think it's a bold move, no doubt, but clearly Cleveland-Cliffs was in a much different situation than what we were in. We are highly integrated; they were a mining company.

They decided to go downstream because they needed to have the ability to sell iron ore, so they had to sell to integrated mills. They're moving to what US Steel is actually moving away from.

We believe strongly that integrated mills, by themselves, are not the future. We strongly believe that minimills, by themselves, are not the future. They both have their limitations. That's why we believe in best of both. So we don't want to be the integrated mill that US Steel has been for the last 100 or so years. What we want to be is a progressive company that has a sustainability focus, like with Big River. Then with our superior finishing lines, where we can make steel that others can't imagine because we have engineering talent that knows how to make steel by digging it out of the dirt.

Where the minimills are process innovators, the integrated mills are product innovators, and over time the process innovators find a way to make the steel of the product innovators.

The things that the minimills have been aspiring to do, with our partnership, we're able to do now. So the idea that the minimills aren't going to be able to make what the integrated mills do over time, that's just not true, it's just they're not going to be able to do it as fast as we believe we're going to be able to do it. We have the talent to do it, and we have the finishing lines to do it.

The minimills, they're the formidable competitors. They're low on the cost curve, but they don't have that much differentiation. They're what's wrong with the industry, frankly, because they have a commodity mindset — build it, and they will come.

They focus on their mills capabilities, and we're focused on the customer. Our strategy is guided by the customer — where the customer takes us is where we're headed. We're not just trying to take out cost, take out cost, take out cost.

What do you think is the biggest challenge for US Steel moving into 2021?

We're forced to deal with so much uncertainty, right? When you're in the commodity business and you have such high cyclicality, you have to build in a lot of optionality because nobody really knows what the future will hold.

The more certainty we have when we get the virus behind us, that's probably the biggest challenge that's hanging out there, and we expect it to be with us through well through 2021.

Dealing with uncertainty related to the virus, and now we have more certainty related to the election ... the more certainty we get there the better we'll be. We're going to continue focusing on what we can control, and be able to influence the rest, and be as nimble as we can.

By Rye Druzin

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