US-based iron ore miner Cleveland-Cliffs will move into the steelmaking business with the acquisition of US steelmaker AK Steel.

The $1.1bn all-stock transaction will vertically integrate the combined company throughout the entire steel supply chain, including iron ore, pellet and steel production.

AK Steel operates two integrated mills in Dearborn, Michigan, and Middletown, Ohio, with a combined production capacity of 4.5mn st/yr. The company can produce hot-rolled coil (HRC), cold-rolled coil (CRC) and hot dip galvanized (HDG) products for the automotive, electrical and construction industries.

The combined company may also avoid the full closure at AK Steel's Ashland Works in Kentucky through the potential restart of the facility for merchant pig iron manufacturing, Cliffs said. Ashland ceased complete operations in November.

Cliffs is currently building a hot-briquetted iron (HBI) plant in Toledo, Ohio, that will have a production capacity of 2.1mn st/yr. HBI is used as a substitute for ferrous scrap along with pig iron. A Voestalpine plant in Corpus Christi, Texas, is the only one that produces it in the US. US electric arc furnace (EAF) steelmaker Nucor operates a direct reduced iron (DRI) plant, which produces the precursor to HBI, in Louisiana.

The transaction is expected to close in the first half of 2020.

Cliffs said that every short ton of pellets sold to AK Steel generates a $30-40/st margin for Cliffs, a cost reduction that will increase the price competitiveness of the finished steel sold by the combined company.

The purchase also locks in AK Steel's pellet consumption of around 6mn st/yr. The company's contracts with Cliffs were set to expire in 2022 and 2023.

By Rye Druzin