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Cleveland-Cliffs closes $1.1bln deal for AK

Mar 13, 2020 | 01:41 PM | Chicago | Michael Cowden

Tags  Cleveland-Cliffs, AK Steel, Lourenco Goncalves, M&A, iron ore, pellets, hot-briquetted iron, HBI flat-rolled steel

Cleveland-Cliffs has completed its $1.1-billion buy of steelmaker AK Steel, a move that will transform the iron ore miner’s role in the North American steel industry.

The pact means Cleveland-Cliffs will produce a full spectrum of products - from iron ore to automotive parts - along the ferrous supply chain, the company said on Friday March 13.

“We will be catering to a desirable customer base and primarily doing business in the United States, the most resilient manufacturing economy in the world,” Lourenco Goncalves, chairman, president and chief executive officer of the combined company, said in a statement.

Cleveland-Cliffs - traditionally a raw materials supplier to the steel industry - will retain its iron ore mines and pellet plants in the upper Midwest as well as its new hot-briquetted iron (HBI) plant in Toledo, Ohio.

It will have a captive customer for some of those products in AK, which operates two integrated steel mills, which consume iron ore to make liquid iron in blast furnaces, as well as two electric-arc furnace (EAF) plants, which produce liquid metal from scrap and virgin metallics such as HBI.

AK Steel makes makes carbon, stainless and electrical steels - with a focus on flat-rolled products. It also has a strong presence in the automotive sector, and so will provide Cleveland-Cliffs entrance into an important end-use market for steel.

The automotive sector accounted for two-thirds AK’s net sales in 2019, according to AK’s 2019 10-K filing with the US Securities and Exchange Commission. AK also has a presence in the auto parts sector through its 2017 acquisition of Precision Partners, which makes engineering, tooling, die design and hot- and cold-stamped steel parts at plants in Ontario, Alabama and Kentucky.

“I am also very pleased to welcome the AK Steel employees and the unions representing the work force throughout the country to the Cleveland-Cliffs family. From now on, we are a single, united and very strong team,” Goncalves said.

Workers at AK Steel and Cleveland-Cliffs are respectively represented by the United Autoworkers union and by the United Steelworkers union - two of the most important industrial unions in the United States.

Cleveland-Cliffs announced its planned acquisition of AK early December, noting that the deal would boost its participation in end markets for high-value-added automotive and electrical steels.

But Goncalves said during a Congressional Steel Caucus meeting earlier this month that he would close two AK steel mills in Ohio and Pennsylvania if trade protections such as Section 232 tariffs and quotas were not expanded to include electrical steels imported into the United States from Canada and Mexico.

Founded in 1847, Cleveland-Cliffs employs approximately 12,000 people across mining and steel manufacturing operations in the United States, Canada and Mexico, according to its website.

The deal comes during an uncertain period for the global steel industry. Prices have plunged abroad on the one-two punch of an oil price collapse and the novel coronavirus pandemic.

Fastmarkets' daily steel hot-rolled coil index, fob mill US was calculated at $29.09 per hundredweight ($581.80 per short ton) on Thursday March 12, down by 4.1% from $30.33 per cwt a week earlier.


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