Nucor Case Analysis

The U.S. steel industry is comprised of three distinct groupings of companies – integrated steelmakers, minimills, and specialty steelmakers. The main difference between them is the stark divide in capacity as well as what they actually manufacture. Integrated firms can produce 107 million tons of steel through reduction of iron ore, and minimills have a capacity of 21 million tons, and these businesses utilize a scrap melting process. Specialty mills have a capacity of 5 million tons, and for the purpose of this analysis, the focus will remain between the first two types of firms. Integrated firms dominated the industry until the 1960s. This segment was dominated by powerhouse companies such as U.S. Steel and Bethlehem Steel, which mainly competed in the flat sheet segment, which accounted for nearly half of U.S. shipments in 1986. The buying criteria for customers of these firms revolved around price, quality, and dependability (both structure and strength). Integrated firms’ mills were located primarily in the upper-Midwest and Pennsylvania, and prided themselves on staying ahead of the curve in technological prowess, at least through the 1950s. A subsequent decline in performance was actually caused by a failure to keep up technologically, as well as low price and high quality imports. These developments paved the way for the development of minimills. Minimills used electric furnaces to melt scrap into steel, took advantage of improvements in casting technologies, and were thus able to reduce the capital cost per ton of capacity. Minimills, by pursuing regional strategies of being located within 200-300 miles of their target markets, were able to reduce operational costs through inexpensive electricity, as well as less expensive labor. Also, because of a narrower product line (which decreased the amount of time spent on manufacturing), minimills began to steal market share from integrated firms. Because of increasing prowess in the manufacturing