Nucor has developed a synergistic workforce that provides substantial productivity while maintaining a flat level of managerial hierarchy and responsible decentralized divisions. This has enabled them to keep the pace of technology and should continue to make investments including commercializing Compact Strip Production (CSP) technology.
* The CSP technology requires continuous operation and a 96% reliability in order for it to be cost effective. This means little time for maintenance or down time. Additionally, fluctuating scrap metal prices are a major factor in profitability. * The CSP technology is new and has never been implemented into a full rate production. The actual production capacities are stated by the manufacturer resulting from smaller test trials. * Other steel manufactures are known to be interested in the CSP technology and the threat of new entrants may drive up the costs of scrap metal and reduce profits. * The CSP technology investment coincides with an ongoing joint venture to produce wide flange beams. The costs associated with conducting both investments would reduce the company’s long-term and short-term assets to $245 million. * Competitors to CSP were beginning to develop new technology using the Hazelett caster, which may be just as efficient, but may become obsolete in 10-12 years.
Nucor has always been the forward leaning steel manufacturer by continually reinvesting in it existing resources. Although all there are significant threats of supply bargaining power and rivalry among competitors with the new technology, they should take the risk of investing to put themselves ahead of the competition and take the market share early. This will increase their production output and increase their competitive advantage in the industry.
My rough calculation estimates a NPV of 60.21.