United States Steel Corp (NYSE: X) has rallied more than 20% in recent sessions on the back of Trump’s approval for its long overdue deal with the Tokyo based Nippon Steel (TYO: 5401).
According to the US President, the said transaction, details of which have eluded the media so far, will see the Japanese steelmaker invest some $14 billion in the US that he believes will help create as many as 70,000 jobs in the country.
However, experts remain wary of that number as the math just doesn’t seem to add up here.
US Steel doesn’t employ half as many employees currently
There are several reasons why Trump’s claim that the US Steel – Nippon agreement will create about 70,000 jobs will prove a miscalculation over time.
For starters, the NYSE listed firm currently has a total of about 20,000 employees only – and that’s including the non US based positions.
Adding 70,000 jobs, as the President claims this deal will over time, would mean a more than five times increase in the company’s current domestic workforce.
This scale of expansion is quite unprecedented and will require a massive increase in the overall production capacity. Note that the steel stock is now up more than 60% year-to-date.
Labour unions are not happy with the US Steel – Nippon deal
Investors are recommended to take the President’s claim of 70,000 new jobs with a pinch of salt as he hasn’t yet offered more colour on how these jobs would be created, whether they’d be direct hires at US Steel or indirect jobs in related industries.
Without a clear breakdown, the number appears speculative only, especially since it’s not backed by Nippon or even the unions.
In fact, the United Steelworkers union has expressed doubts about the deal, noting that the Japan’s behemoth did not consult it before announcing that transaction.
If labour unions are not fully on board, it could lead to resistance or delays in job creation, making it incrementally more challenging for the merged company to hit that 70,000 number.
Global steelmakers have been turning to automation
Investors should also note that modern steel production relies heavily on automation, reducing the need for large-scale hiring.
So, Nippon may invest $14 billion, part of which will reportedly go to setting up a new steel mill in the US – but even the new facilities may not require as many workers as the White House has recently claimed.
Finally, the regulatory hurdles could limit the scope of US Steel – Nippon transaction in terms of creating new jobs in the United States.
Given these variables, President Trump’s claim of 70,000 new jobs seems highly optimist and very difficult to achieve under current industry conditions.
That may be part of the reason why Nippon stock is slipping following his announcement.
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