Nippon Steel Extends U.S. Steel Deal Deadline Amid Biden's Looming Decision

The S&P 500 is on a six-day winning streak and closed at another record on Tuesday, as investors grow more confident that the Fed could cut interest rates soon. The market rally came after Jay Powell, the Fed chair, made encouraging comments about inflation and the labor market in his first of two days of testimony on Capitol Hill.

The Fed is in a delicate situation. Lowering rates prematurely could risk reigniting inflation, and doing so too slowly could undermine growth. “We’re very much balancing those two risks, and that’s really the essence of what we’re thinking about these days,” Powell told the Senate Banking Committee on Tuesday.

Investors are focusing on the upside. In something of a rarity in recent months, financial services stocks led the way on Tuesday. That was after Powell said that regulators were “very close” to agreeing on a revamped proposal on how much capital big banks would be required to hold — a potentially big victory for Wall Street.



Here are the key takeaways from Tuesday’s hearing:
- The good: The jobs picture points to a soft-landing scenario. A recent drop-off in hiring and wage gains indicates that the labor market is “not a source of broad inflationary pressures for the economy now,” Powell said.
- The better: The first-quarter uptick in inflation hasn’t persisted. “The most recent monthly readings have shown modest further progress,” he said, adding that just two months ago he wouldn’t have reached that conclusion.
- The best (for Wall Street): Powell’s update on new capital requirements for lenders sent shares of Goldman Sachs to a new high, and lifted other bank stocks, on hopes that the hotly contested measures would be tamer than first feared. In March, he signaled that the Fed could scale back or rework the rules. On Tuesday, Powell laid out a timeline that could see a final proposal bogged down in review for months.



Powell will testify again on Wednesday, this time before the House Financial Services Committee. Expect more questions about the proposed banking rules, the economy, and the Fed’s timing on rate cuts. On Tuesday, he deflected questions on market speculation that the first cut could come in September, saying that Fed policymakers were looking for “more good data” that inflation is edging closer to its 2 percent target before it begins lowering borrowing costs.

That makes Thursday’s Consumer Price Index report a key data point to watch.

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Nippon Steel, Japan's largest steelmaker, has extended the closing date for its $14.9 billion acquisition of U.S. Steel to the first quarter of 2025, buying more time to address concerns raised by the Committee on Foreign Investment in the United States (CFIUS) and President Joe Biden. The extension allows Nippon Steel to reset the clock, potentially keeping the controversial deal alive amid political opposition in an election year.

The surprise development comes as President Joe Biden, Republican presidential nominee Donald Trump, and Democratic nominee Vice President Kamala Harris have all voiced opposition to the deal. The Committee on Foreign Investment in the United States (CFIUS), a team of Cabinet-level appointees that reviews all deals of a certain size involving U.S. entities, has been studying the takeover of Pittsburgh-based U.S. Steel for several months on the grounds of national security.

With the White House signaling it would block the deal, and CFIUS officials wanting to operate outside the pressure of political calendars, an extension of the timeline seemed the best outcome, according to two separate sources. A spokesperson for the Tokyo-based company declined to comment, while a spokesperson for the Pittsburgh-based U.S. Steel did not respond to a request for comment.

The proposed takeover has become a political hot potato, with multiple Rust Belt Democrats and business groups warning of the risks of politicizing the CFIUS process. The United Steelworkers union, which has endorsed Harris for president, has also been a leading opponent of the acquisition.

Earlier this month, U.S. Steel said it would be forced to lay off workers and shutter mills without Nippon's backing. Japanese Prime Minister Fumio Kishida told reporters during a White House visit in April that the legal reviews would determine the deal's outcome.

Several business groups sent a letter last week to Treasury Secretary Janet Yellen, warning of the risks of politicizing a process that was created to study national security risks on their merits.

U.S. Steel put itself up for sale in 2023 after receiving an unsolicited $7 billion takeover offer from Ohio-based Cleveland Cliffs. The $14.9 billion deal with Nippon Steel, Japan's largest steelmaker, resulted from that sale process.

The extension of the closing date for the acquisition of U.S. Steel by Nippon Steel has significant implications for the strategic positioning of the combined company in the global steel market. Here's how:

1. Financial Strength: Nippon Steel's financial resources will be crucial in investing in U.S. Steel's mills and upgrading them, which could help preserve steel production within the United States. This investment could strengthen the combined company's competitive position in the global steel market. As mentioned in the material, Nippon Steel has pledged to invest $2.7 billion in United Steelworkers-represented facilities, including U.S. Steel's blast furnaces.
2. Market Share: The combined company would be among the top three steel-producing companies in the world, according to 2023 figures from the World Steel Association. This increased market share could provide economies of scale and enhance the company's bargaining power with customers and suppliers.
3. Technological Advancements: With the additional time, the combined company could invest in research and development to improve production processes and develop new steel products. This could help the company stay competitive in the global market and cater to evolving customer needs.
4. Geographic Diversification: The acquisition would provide Nippon Steel with a foothold in the U.S. market, while U.S. Steel would gain access to Nippon Steel's global network. This geographic diversification could help the combined company mitigate risks associated with relying on a single market and take advantage of opportunities in different regions.
5. Trade Matters: Nippon Steel has pledged to protect U.S. Steel in trade matters. With the extension, the combined company could work on strengthening its position in international trade negotiations and protecting its interests in the global market.

However, the extension also introduces uncertainty and potential risks. The political opposition to the deal could lead to further delays or even a blocked acquisition, which could negatively impact the strategic positioning of both companies. Additionally, the extended timeline could allow competitors to gain a strategic advantage by investing in their own operations or forming alliances.

Powell will testify again on Wednesday, this time before the House Financial Services Committee. Expect more questions about the proposed banking rules, the economy, and the Fed’s timing on rate cuts. On Tuesday, he deflected questions on market speculation that the first cut could come in September, saying that Fed policymakers were looking for “more good data” that inflation is edging closer to its 2 percent target before it begins lowering borrowing costs.

That makes Thursday’s Consumer Price Index report a key data point to watch.