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Trump signals support for Nippon Steel's ( NISTF ) bid for U.S.

Steel

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Final approval, deal details yet to emerge

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Nippon Steel ( NISTF ) looks to US for growth amid weak domestic

demand

By Katya Golubkova and Anton Bridge

TOKYO, May 29 (Reuters) - Nippon Steel ( NISTF )

investors and analysts are asking if its $15-billion deal to buy

U.S. Steel, backed but not yet approved by President

Donald Trump, is positive for the near term, even if its hopes

for strong U.S. demand materialise.

Such a merger would create the world's third-largest steel

producer by volume, after China's Baowu Steel Group and

Luxembourg-based ArcelorMittal, data from the World

Steel Association (WorldSteel) shows.

The "planned partnership" would create at least 70,000 jobs

and add $14 billion to the U.S. economy via Nippon Steel's ( NISTF )

additional investments, Trump said last week.

While full details of the deal remain unclear, U.S. Steel

shares surged 21% on the news and Nippon Steel ( NISTF ) gained 7%.

Nippon Steel ( NISTF ) did not exclude issuing new shares to fund the

takeover, Vice Chairman Takahiro Mori said in December, after

having already raised some funds through hybrid financing and

asset sales.

"If the new equity is issued, investors will rightly be

asking: is this the best possible use of capital at this

moment?" said Fiona Deutsch, lead analyst with Australasian

Centre for Corporate Responsibility (ACCR).

The company had pledged an investment of up to $4 billion in

a new coal-dependent blast furnace, said Deutsch, whose climate

activist group holds less than 1% of Nippon Steel's ( NISTF ) shares.

That plan, part of a wider investment commitment of $14

billion, comes "at a time when the global steel sector is

shifting towards low-carbon alternatives", she added.

Nippon Steel ( NISTF ) shares were up 1% by 0405 GMT, outperforming

the overall Nikkei index which was up 1.6%.

Unveiling the deal in late 2023, Nippon Steel ( NISTF ) offered $55

for each share of U.S. Steel, for a premium of 40% at the time.

U.S. Steel shares closed at $53.3 on Wednesday.

"There's a lot of immediate negative effects, even though

the long-term effect may be positive," said an adviser to

institutional investors on strategies for Nippon Steel ( NISTF ).

He cited the dilution as a further deterrent, besides the

high offer price and additional investment commitments.

Nippon Steel ( NISTF ) did not reply to a Reuters request for a

comment.

"In the short term, there are concerns about financing,"

said Shinichiro Ozaki, a senior analyst at Daiwa Securities.

"Given that U.S. Steel reported a net loss for the

January-March period, the stock market may worry about the

limited likelihood of a short-term return on the investment."

STRATEGIC GOALS

Projections that domestic demand will stay weak have pushed

Nippon Steel ( NISTF ), which is Japan's largest steelmaker, and others to

look to overseas expansion, while they consider shutting some

blast furnaces at home.

U.S. Steel is key to Nippon Steel's ( NISTF ) goal to raise its global

output capacity to more than 100 million metric tons a year from

63 million tons now, as it aims to benefit from demand in India

and the United States.

Both markets are relatively protected from vast steel

exports from China, the world's top producer, thanks to

protectionist measures they have adopted, such as tariffs.

In March, Nippon Steel ( NISTF ) President Tadashi Imai, who also

chairs the Japan Iron and Steel Federation, warned that U.S.

auto and steel tariffs could cut several million tons from

Japan's annual steel output to below 80 million tons.

Ownership of U.S. Steel could provide a shield for Nippon

Steel ( NISTF ) from the impact of tariffs on non-U.S. operations, said

Alistair Ramsay, vice president of Rystad Energy.

"Should underlying demand in the United States begin and

continue to recover, then we would expect the investment to pay

off in good time, regardless of the duration of tariffs," he

said.

"But that's a big if, given how far the U.S. market has

shrunk over the past few years, never mind this century."

U.S. steel consumption is expected to rise by 2% this year

after a drop of 1.5% in 2024, according to WorldSteel.

This month, Nippon Steel ( NISTF ) said it would cut its dividend for

the current fiscal year to 120 yen a share, off last year's 160

yen, and its lowest since 2021, amid a projected fall in

profits, but the overall payout ratio would stay at 30%.

"For the investor who cares about the share price today, you

wouldn't be looking at factoring in synergies based on what you

think might happen in two to three years," said the adviser, who

sought anonymity as the matter is a sensitive one.