Rev. January 20, 1998
Nucor at a Crossroads
On December 7, 1986, F. Kenneth Iverson, chairman and chief executive officer (CEO) of Nucor Corporation, awaited a delegation from SMS Schloemann-Siemag, a leading West German supplier of steelmaking equipment, at his company’s headquarters in Charlotte, North Carolina. Iverson had to decide whether to commit Nucor to a new steel mill that would commercialize thinslab casting technology developed by SMS. Preliminary estimates indicated that the mill would cost $280 million, and that start-up expenses and working capital of $30 million each would push the total cost to $340 million, or nearly as much as Nucor’s net worth. Successful commercialization of thin-slab casting would let Nucor enter the flat sheet segment that accounted for half the U.S. market for steel. SMS’s compact strip production (CSP) process was, however, just one of several competing, commercially unproven thin-slab casting technologies, all of which might be leapfrogged by the turn of the century. As Iverson wrestled with these trade-offs, he reviewed the state of competition in the U.S. steel industry in general and Nucor’s position within it in particular.
In 1986, U.S. producers shipped 70 million tons of steel mill products. Subtracting exports of one million tons and adding imports of 21 million tons implied 90 million tons of domestic consumption of steel that year. Relative to the most recent peak year, 1979, domestic shipments had decreased by 30% and domestic demand by 22% (see Exhibit 1). The decline in demand derived from the stagnation of many steel-intensive industries, particularly automobile manufacture, efforts to use steel more efficiently and the emergence of substitute materials such as aluminum, plastics and advanced composites. There was general agreement in 1986, however, that the market would not decline further in the near term. Although the market for steel comprised several thousand distinct products, they could largely be grouped into a few broad segments. Semifinished products were at least 8 - 10 inches thick and required further processing. Flat-rolling them yielded plates (more than 0.25 inches thick), or sheet and strip, thinner products that could be shipped in coils.1 Other kinds of products that could
1Sheet and strip were supposed to be of different widths, but were often lumped together.
Professor Pankaj Ghemawat and Research Associate Henricus J. Stander III prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. It is based in part on a field study by Sarah Hall, Takashi Nawa and Seiji Yasubuchi, all MBAs 1990. Copyright © 1992 by the President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685 or write Harvard Business School Publishing, Boston, MA 02163. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.
The U.S. Market for Steel
Nucor at a Crossroads
be formed from semifinished steel included bars, which were typically less than one inch thick; wire rods, which were even thinner; a wide variety of structural shapes that were used primarily in construction and hollow pipes and tubes. Flat sheet was by far the most important of these segments: it accounted for about half of domestic shipments in 1986 (see Exhibit 2). Shipments could also be classified by customer group. The four most important ones, ranked by volume, were service centers and distributors, the automotive sector, construction, and the appliance and equipment industries. Service centers and distributors were intermediaries that had increased...